What is the significance of folklore in literature?
What is the function of folklore in literature?
According to William Bascom major article on the topic there are "four functions to folklore":

Folklore lets people escape from repressions imposed upon them by society.
Folklore validates culture, justifying its rituals and institutions to those who perform and observe them.
Folklore is a pedagogic device which reinforces morals and values and builds wit.
Folklore is a means of applying social pressure and exercising social control.