The Faerie Civil War and the creation of mortal races

For untold generations the Sidhe have lived with their gods in harmony. However the gods now tell their faithful that the worlds are seperating and that soon all will be in the mortal plane.

Some Arch fey seeing this as a chance rebel against the gods and resurrect some of the lost arts of the Primordial Titans to create pockets of Faerie that will not assimilate.

The ever changeable Sidhe take on new forms that appeal to their nature. Some become the Progenitors of Elves and Dwarves and others of the good or neutral demihumans, while others of a darker nature become the Goblins and other humanoids.
Thus the Bright Court or Seelie Court is founded as is the Dark Court or Unseelie Court.

The civil war lasts until the gods intervene and the worlds are separated from the mists. The differing factions became the new races of Arda, while the Arch Fey and their more powerful servants are able to keep small pockets of Faerie alive, yet adjacent to the mortal plane. These pockets are called the Feywild.