`Every time a child says "I don't believe in fairies," there's a little fairy somewhere that falls down dead' (JM Barrie, `Peter Pan'). In which case, over at the Royal Academy, they must be dropping as fast as flies in a Damien Hirst vitrine. For, as Tom Lubbock observes, it takes an adult imagination to appreciate the erotic potential of fairyland.

Do you believe in fairies? WB Yeats had a robust answer for the scoffers. "Imagination!" he would say with a withering contempt. "There wasn't much imagination when Farmer Hogan was dragged out of bed and thrashed like a sack of potatoes. That they did... they had 'um out, and thumped 'um, and that's not the sort of thing a man wants to imagine." I don't know whether this shows that Yeats was himself a believer, but it was an effective retort, because it made the sceptics look like the airy impractical ones; it was they, with their ideas of dainty, diaphanous entities, who were in thrall to a fancy.

It was a fancy partly created by the sort of images to be seen in "Victorian Fairy Painting" at the Royal Academy. This is a curious show, valuable in a way, because it focuses on pictures that - like the fairies themselves - one is likely to dismiss as trifles; and, although the genre didn't produce more than a few good works, it was extensive, and part of a wider fairy cult that thrived through all the arts in the middle of the 19th century, and so needs reckoning with. The odd thing is that it was addressed to adults and didn't become child-centred until later in the century. And, dwelling on these teeming scenes of fay life by such as Joseph Noel Paton and John Anster Fitzgerald, you can't help asking how seriously, with what kind of seriousness, they're to be taken.

Literal belief seems not to be the issue, though no doubt the thought that some people did believe in them helped the subject carry some conviction. But fairies here are strictly imaginary; indeed that's the main point of them. They're mascots of The Imagination, a way of showing that you still had one in an explained, urban, industrialised world. There's an implied cry of "Nay, thou shalt not rob life of its enchantment, O base utilitarian!" But it was more than a consoling game of let's pretend. It was, to use that shifty modern idiom, a myth - a fiction with deep and varied satisfactions, erotic, patriotic and spiritual.

The Fairy was re-invented for the purpose. Blake and Fuseli (important progenitors, not in the show) had added butterfly and insect wings to the traditional little people, a graft from mythological representations of Psyche. The newly devised point-work of the ballet inspired their light, twinkle-toes gait, very far from Yeats's thumpers. Theatre generally, with its extravagant spectacles, was a big influence, and specifically Shakespeare, the Shakespeare of A Midsummer Night's Dream or The Tempest. Most of the earliest pictures feature Oberon, Titania, Puck, Ariel and company. But painting could also convey something that the stage couldn't so easily manage: a feeling of intimate voyeurism - and that seems to be one of the big appeals of the genre, the secret, transitory, trespassing glimpse that's likely to vanish if you look twice or if the fairies spot you.

Two of the best pictures in the Royal Academy's show do this apparition effect very well, in different ways. George Cruikshank's A Fantasy, The Fairy Ring shows a wild round-dance on the grass, not tippy-toed, really whirring round. The view is quite distant and overhead, the little figures only just distinguishable, and it captures just that moment when someone walking across a field at night is wondering, "Now what's that strange pulsing ring of light on the ground over there - Oh, my God!" It's a rare picture here, in imagining what it would be like suddenly to encounter the fairies. Meanwhile Francis Danby's Scene from a Midsummer Night's Dream holds a limpid moment of moonlit stillness, viewed from very near to the ground. It's expertly atmospheric. The little picking-out points of highlight which go dink, dink, dink through the pervading darkness, the delicacy with which the flora (a dew-dropped leaf, a curling catkin) just touch the pool-smooth patch of ground - these tentative devices match and stress the light tread of the fairy feet, and the brevity of the vision.

Danby's low-down close-up allows scale-jumps to go both ways. The people are little, but he's equally interested in vegetation that looks real but unnaturally magnified. So the supernatural is made one with a naturalist's close observation, and made persuasive. The effect is quite lost in Paton's populous, wide-view tableaux, where the emphasis is all on human scales. But there, like other painters, he has fun. The fairies are small, but then come in all sizes, and this lets him cram his scenes with proliferating, ever-minuter detail, like a fractal picture, which leaves the most patiently head-counting viewer - and you have to be that kind of viewer to enjoy his paintings at all - feeling that some really tiny ones have still escaped view. So, even though the rendering is very clearly realised, Paton can retain a sense of fairy elusiveness by making them vanishingly small.

But we'd be inclined to say that Paton's sustaining interest, and the genre's as a whole, is erotic. Fairies are a way of creating innocent, low-gravity orgies, waves of closely thronging flesh. Of course fairies are traditionally sex-related - as in the Dream - but it's disconcerting to see it pictured. There's something rather icky about a sex-object only a few inches high (what do you do with it exactly? Just kind of finger it?) or in the idea of moving your hand through a cluster of minuscule, wriggling bodies, or being swarmed all over. When the subject is Titania's dallying with Bottom (in Landseer's picture, say) the fairy Queen is shown human size, so as to remove these feelings; or, again, you can do a fairy just as a normal female nude with wings and something to indicate scale (as in John Simmons's Titania). But often the artists seem to emphasise how one might feel about fairy bodies by giving them a not quite human anatomy - slightly elongated, tapering, but with very solid thighs. They want it both ways, dainty and voluptuous too, and you're not quite sure if this is meant to be super-feminine or grotesque.

The big change of gear comes with Fitzgerald, and although he's very weird, it's a less troubling weirdness, because much more explicit. His fairies aren't conceived as real, tangible bodies. They're overtly psychological - not literary or folkloric, but mind figments, the products of bad dreams and laudanum hallucinations. A series of pictures has a sleeper (the artist or a young woman) troubled by impish visions, with the imagery drawing much on Bosch. The conception is avowedly sinister and grotesque, which actually diminishes both those qualities. And in his pure fairy scenes, spiky and luridly coloured, while he gets quite close to surrealists like Leonora Carrington, he also points to the child's fairy. These creatures are elaborately dressed from a botanical costume box, and their behaviour suggests children at play, not a perversely miniaturised adulthood.

Fairy painting produced one acknowledged masterpiece, Richard Dadd's The Fairy Feller's Masterstroke, painted by the artist when he was confined in Bethlem asylum after murdering his father. It stays an extraordinary work, not very likeable, in fact extraordinary because so inhuman. It takes the stock accomplishments of fairy pictures - the play with scales, the obsessive detail - and pushes them to impossible extremes. The microscopic detailing seems to exceed the power of the human eye. The blades of grass that spread like a net over the scene are as though seen by an actual wee person. The cast of figures, some human-looking, others more or less grotesque - like the fairies with their elephantine calves, the elf whose features are stretched and squashed as if in a distorting glass, and the grasshopper playing a trumpet - are observed with scary calm and normality.

And the paintwork is so richly and minutely textured as to be almost low relief, giving striking reality effects. The veined leaf appears pressed against the picture surface, and in the gravelly area at the fairy-feller's feet, it looks like Dadd has mixed something gritty into the paint to get the puckering, but I bet he brought up each tiny bobble individually with infinite care and a very fine brush. The picture does its best to declare that it is no work of the imagination, neither seen by human eye nor painted by human hand - a fairy artefact itself. Believe it or not, it's the only painting in the show that could stand up to some sharp practical criticism from the likes of Farmer Hogan.

`Victorian Fairy Painting', at the Royal Academy to 8 February (0171- 300 8000)