Icelanders have always been a good storytellers. In the Middle Ages they were chosen to stay with the Kings of different countries to tell stories and tales.
In the 12th century they started to write their own history and the history of the old Viking world. These books wore written on calfskin in the old nordic language. This is what Icelanders call Saga books. This language is so simular to the modern Icelandic that today they can take these scripts, open them up and read them without translation.
These books are collections of many different stories, many of them fictions with a bit of truth. They are written like a modern books and you get excited to follow the leading caracter in battles and drama just like in a good story from the 20th century.
However then Icelanders kept big part of their history as well in their folktales. Folktales are rich in Iceland and tell us not only about the Trolls, Hidden People, Ghosts and monsters. It tell us how the nation was surviving through the darkest time of its history.
Small tremor in a strange landscape in the twilight, a man is walking and get a bit scared. Maybe the moonlight light up a part of some big rock and make it look like a troll. This man might come to the nearest farm and tell a story of how scared he got and what the landscape looked like. That story would then go from one man to another one, from on farm to another farm and change a bit.