This just occurred to me. The people who live in a fantastical world -- let us for a moment populate it with the usual suspected -- would themselves have legends and would themselves have fantastical beasts.
They probably wouldn't have stories about magic, per se, but they would have stories about things wondrous. Visits from gods. Visits to other planes of existence (heavens, hells). Extraordinary beasts.
It could be fun exploring the fantasy stories of elves, the mythologies of dwarves, and so on. Maybe in those stories, humans are among the incredible.
They probably wouldn't have stories about magic, per se, but they would have stories about things wondrous. Visits from gods. Visits to other planes of existence (heavens, hells). Extraordinary beasts.
It could be fun exploring the fantasy stories of elves, the mythologies of dwarves, and so on. Maybe in those stories, humans are among the incredible.