Noted folklorist Jack Zipes has just released a translation of the first edition of the Grimm collection, which appeared in 1812, followed by six more editions, the last appearing in 1857. These were extremely successful, but they were also affected by the marketplace. As the linked article indicates - and Zipes is attempting to underscore - the various editions softened the tales, making them increasingly palatable for the merging urban readers of the Germanies. So in answer to your first question, not only did Jacob and Wilhelm Grimm "tone down" the material they collected, but the toning down process continued as they released their various editions.

The Brothers Grimm were not the first to dip into oral tradition to craft popular publications, targeted largely for children. Consider, for example, Charles Perrault (1628-1703) and his Mother Goose tales. The goal of providing appropriate stories for children inspired by oral tradition reached an extreme with Hans Christian Andersen (1805-1875) who created his own stories, borrowing only the flavor of oral tradition.

The stories collected by Jacob and Wilhelm Grimm - and the many others throughout the nineteenth and early twentieth centuries - appear to be of various ages. The Finnish Historic Geographic Method called on folklorists to write monographs on specific tale types to determine their age, their distribution, and the effect of diffusion in the production of "variants" - subtypes that formed in response to various factors. For example, my mentor, Sven S. Liljeblad (1899-2000) wrote his dissertation on the Grateful Dead in 1927 under the direction of Carl Wilhelm von Sydow (1878-1952), but Liljeblad and von Sydow were already veering away from the Finnish approach because they were concluding that finding - and dating - the "Ur" form of a folktale was an elusive goal. What is clear is that stories change over time and geography - largely because the act of transmission naturally causes mutations.

That said, an ancient Egyptian variant of The Tale of the Two Brothers - which appears in Grimm - indicates just how old some of these stories are. Other tales manifest in Classical Greek literature. It is clear that folktales change over time and geography. How and why they change is the focus of hundreds of studies over the part two centuries, but in general it is clear that they change because the act of transmission introduces mutations.

Your questions cut to the core of the history of folklore as a discipline, but they also are at the heart of folklore studies, so answers could take any direction. Don't hesitate to ask additional questions. The following excerpt from my Introduction to Folklore may be of use:

Folktales – or Märchen, again using the German, technical term – are longer stories with more than one episode. They are restricted, in theory at least, to evening presentation. A folktale is not to be believed, taking place in a fantastic setting. The European folktale also requires a happy ending, the cliché of “happily ever after.” Any given folktale can be told with considerable variation, but they are traditional in basic form, and folklorists have spent decades tracing the history and distribution of these stories.

A word here about the term “fairytale” is appropriate. At the end of the eighteenth century, various writers, most prominently the Grimm brothers, began publishing children’s stories based on folktales. These collections became extremely popular, particularly among the urban and increasingly literate emerging middle class as it found itself removed from the peasant soil that served as home to the stories. Fairytales often cause misunderstandings. In a culture that knows more about fairytales than Märchen, people assume that the folktale was intended for children. This is certainly not the case since the stories were often violent or sexual in ways thought inappropriate for children. Indeed, the telling of a folktale was usually delayed until the children had gone to bed. While fairytales provide the modern reader with the easiest access to the many stories that were once told internationally, one should always realize that they are removed from the primary inspiration. The original stories and their content provided serious entertainment for adults and they were part of an oral tradition, not something that was fossilized in writing.

The evolution of published fairytales had a profound effect on the subject of fairies, elves, trolls, and similar entities. Because fairytales became the literary domain of children, many people – including later writers – assumed the same was true of the supernatural beings. In their original context, nothing could be further from the truth. These were not cute, diminutive creatures whose sole purpose was to delight children. They were powerful, dangerous, and capable of great harm. The European peasantry feared and respected them, and their stories underscore this, conveying in uncompromising terms the code of ethics and behavior that one must employ to survive an encounter with the dangerous world of magic and power.

The definition proposed here for “fairytale” does not necessarily coincide with how people – and even some folklorists – use the term. Some scholars regard “fairytale” as appropriate for the more fantastic expressions of folktales as they were told by the folk. The reason why the term is not used in that capacity here is because the folk did not refer to these stories as fairytales and because the term implies a degree of innocence that is inappropriate; again, “fairytale” is most suitably reserved for the published children stories that gave literary expression to the adult oral fictions of the folk.