I have a world where the magic system is based pretty much on the Ars Magica RPG and a technological level roughly equivalent to 17th century Earth.
Co-existing (in the same geographical areas but not typically the same settlements) with humans and human-like beings that are approximately the same size as normal humans are fairies - who are effectively humans who average 3" / 7.63cm tall and weigh on average 0.017lb/7.5g with a variety of insect-like and bird-like wings and the ability to fly about as well as the creature their wings resemble.
Through magic, these fairies:
- Are as intelligent as normal-sized humans.
- Have the same physical proportions as humans (making them proportionally stronger than normal humans according to the square/cube law, able to lift about 10 times their own mass on average, i.e. 75g).
- Do not need fur or unusually thick clothing to retain body heat in climates comfortable to normal sized humans.
- Need to consume only three times the amount of food/energy per unit mass in comparison to normal humans (roughly 9 proportionally-sized meals per day - or fewer larger meals - as opposed to 3 per day for normal humans) instead of 10 times that of normal humans as the mathematics would suggest is necessary.
- Are each militarily roughly equivalent to an equivalently equipped and trained normal sized non-magical human due to their small size, quickness, proportionally greater strength and magical abilities.
- Can interbreed with normal sized humans (with considerable difficulty due to the size difference), producing fertile offspring of the same size and ability to fly as the mother.
- reproduce and mature at the same rate as normal sized humans.
- speak and hear 2 to 3 octaves higher pitch than normal humans.
Given these factors, what differences would occur in fairy society including both sociology and settlement design, in comparison to normal humans.
Some misapprehension appears to have arisen over fairies' military capabilities. The average normal-sized human peasant conscript is equivalent to the average fairy peasant conscript in combat, given similar equipment. The fairy would need to get a large number of good hits on the normal-sized human to incapacitate or kill him, but the human would only need one good hit to eliminate a fairy, the size, speed and stealth factor is included in this comparison. In contrast, a trained and armoured knight (either fairy or normal-sized) could be expected to be able to cut down dozens of peasants, be they normal sized or fairy. So, given a fairy army of size N, it is considered equivalent to a normal human army of size N. Yes, there is asymmetry, however this is factored in. Finally, fairies do not reproduce any faster than normal-sized humans, so each loss is equally as significant to their society, regardless of the size of the combatant.
Secondly, I didn't adequately explain that Fairies are limited in the places that they can live - they require particularly high levels of background magical aura, without which their magical advantages will be lost, i.e. they would become quite stupid (about as smart as a rat), would need to eat constantly (30 full-sized meals per day, not just 9), and would require a tropical climate or highly insulating clothes to avoid hypothermia, as well as having a much-reduced lifespan - on the order of weeks as opposed to normal humans' years (A 100-week old fairy in a non-magical environment would be positively ancient). Normal humans are not limited in this way in reverse, however given the fairies' advantages in their high-magic-aura environments, this explains the geographical separation (Magicians - fairy or normal human - cannot affect magical auras positively, only negatively, and only indirectly, by over-use of magic). So, a fairy cannot go "anywhere", only where the world is magical enough for them to exist. More magically powerful fairies can go a little further from these places without these ill-effects, but must use their personal magic to compensate for the lack of environmental magic, in turn reducing their usual magical capabilities. Regions of low magic aura are effectively barriers as much as mountains and seas are to normal humans.
Finally, This question was intended to be about how these fairies would live and interact with each-other as much as how they would interact with normal-sized humans; most of the answers seem to be focusing on warfare and species domination as opposed to what this question was actually asking.
How do these fairies live, i.e.: What would their settlements look like and what occupations would they follow? What could they trade with other races?