In Dunbarton, you should be able to meet the NPC Fairy Town Messenger, who will tell you about the items and methods needed to find the five Fairies.
The first fairy, having to do with Blacksmithing skills, you can meet at a certain rate when using Metallurgy or Mining successfully.
The second fairy, having to do with Cooking skills, you can meet at a certain rate when using Egg gathering, Mushroom gathering, Milking, Harvesting, or Hoeing successfully.
The third fairy, having to do with Tailoring skills, you can meet at a certain rate when using Sheep shearing successfully.
The fourth fairy, having to do with Medicine skills, you can meet at a certain rate when using Herbalism successfully.
The fifth fairy, having to do with Carpentry skills, you can meet at a certain rate when using Carpentry (gathering woods with the axe) successfully.
You have a higher chance of these fairies to appear when you have the rainbow candy in your inventory.
The "Fairy Town Storybook" is essentially your journal of keeping track of these fairies.
There are also bonuses depending on how many times you find the fairies, in regards to their skillsets. Finding them 10 times will give 1.1x training bonus, 20 will give 1.2 training bonus, 30 will give 1.3, 40 will give 1.4, and 50 will give 1.5.
After meeting the fairies of each skillset 50 times, they will go back into their towns. When they leave, they will give you a miniature (a homestead feature, I assume) that resembles them.
Depending on how many times you meet the fairies, your town level goes up too. Level 2 gives 200k exp, level 3 gives one 2x life skill training potion, level 4 gives two of the same, and level 5 gives you a gift from the fairies as well as fairies' skill training seal (50 exp).
You'll know when you get a fairy/brownie to show up as you'll get this lovely critter to pop up and run around ya.
[Image: https://38.media.tumblr.com/4797142f085766dd221cdd77f0f38255/tumblr_nmm3qfi9ky1s72n51o2_540.gif]
Here's the storybook:
[Image: http://puu.sh/h96XL/51327487de.png]
Here's what the book looks like on the inside:
[Image: http://puu.sh/h971m/db4cd5a00b.png]
In this image I found 5 of the blacksmith oriented ones which used up 5 rainbow candies so I got 45 left.
It's a pretty cute event