Yes, there is a little bit of that, but more than anything it's because the words "dwarf", "elf", "fairy", etc. are all particularly ambiguous, and they aren't the words originally used by the cultures that invented those concepts. Also, though in this day and age coherent information is more possible because of the internet, but back then two neighboring tribes might have completely different words for the exact same thing, thus leading to confusion as to what was what.
There is quite a bit of evidence to suggest that fairies/dwarfs/elfs/etc. are all diminutized versions of ancient European nature Gods, that were reduced to the status of minor nature spirits when more anthropomorphic Gods began to be worshipped by the pagan tribes.