Something to Talk About

Legends...fairy tales...rumors...superstitions...fables...
How do these things come to be? Obviously they start with rumors, but how do rumors start? It's like when you used to play the game Telephone as a kid. Everyone sits in a line or a circle and one person starts off with a phrase. By the end of the chain, the phrase is NOTHING like the beginning. So how do these things get started? One person sees one thing, so they decide to pass it on. The next person then adds a bit of their own embellishment, no matter how minor. Then the next adds on to that, maybe leaves out a few things they think have no relation to core story, and so on and so forth. Some happen to be embellished so extraordinarily they turn into fairy tales.
So where do the tales of Sleepy Hollow or urban legends like someone taking a kidney without the person knowing about it come to be so well known? What was the original story that led to such an explosion of literary debate come to be? Are these tales true? False? Is there any basis to them?
I'm the type of person that likes the history behind things. I never liked history in school (though I did well at it), but things like this interest me. Stories, sayings...for example, the other day Jimmy and I were at the bar for karaoke. One of us made a comment about making biscuits from scratch. I was wondering where the phrase "made from scratch" came from. So Jimmy proceeded to whip out his handy Droid and looked it up. It actually originally comes from a sports term. In ancient times, one would draw a line in the dirt...a scratch, if you will...as a starting point. Over the years, it somehow switched to a cooking term, meaning to start from the beginning, no boxes or mixes.
So in a world that practically relies on heresay and gossip, how do we know what is true, what is real?