I’m very ignorant when it comes to this topic, so don’t think I’m trying to prove a point here.
I was reading about James Macpherson and his “Ossian”, which to my understanding, he tried to pass off as authentic Gaelic mythology he discovered from ancient sources. It was proved to be a fabrication.
It got me wondering, how do we know that Snorri Sturluson didn’t do the same in his time in regards to Norse mythology. My understanding is that he is basically our only source for many ancient Norse myths.
I realize I’m probably way off base here, so please be gentle!
Strictly speaking we can't know exactly how much Norse mythology he fabricated out of whole cloth. What we do know is that he is not completely making it up. Many of the gods, events, and heims he mentions are found in other, older sources.
The Prose Edda is the clearest surviving source in regards to Norse myth. It is written in fairly clear, simple prose and covers a rather large amount of material. The first section, Gylfaginning, is focused on discussing the various stories and myths while Skaldskaparmal and Hattatal are more focused on the language and construction of proper Icelandic alliterative poetry. There are still details related to the myths that get brought up in the later sections, especially Skaldskaparmal but it is not the primary focus.
Anyways, having established that let's look at another source. Our main big one is what has come to be known as the Poetic Edda. A lot of the poetry that is contained in the Edda can be found in only one manuscript known as the Codex Regius. Many of these poems contain events or at least characters from the mythology. This is especially true of Voluspa, Grimnismal, and Havamal. Now, the Codex Regius manuscript that survives dates to around 1270 (30 years after Snorri's untimely demise). But we know that the poems must be older than that because Snorri quotes directly from Voluspa at several points in the Prose Edda. While it can be hard to date poems and manuscripts in general (for a wide variety of reasons) it is generally thought that Voluspa dates to about the 10^th century. The main issue in regards to its treatment of the mythology arises in that Norse alliterative poetry is very bare bones and allusive in terms of content. They don't go into detail about the various events. The account of the creation of the world in Voluspa goes:
Young were the years when Ymir made his settlement,
there was no sand nor sea nor cool waves;
earth was nowhere nor the sky above,
chaos yawned, grass was there nowhere.
First the sons of Bur brought up the earth,
the glorious ones who shaped the world between;
the sun shone from the south on the hall of stones,
then the soil was grown over with green plants.
A more detailed account is provided in Grimnismal (also likely from the 10^th century):
From Ymir's flesh the earth was made,
and from his blood, the sea,
mountains from his bones, trees from his hair,
and from his skull the sky.
And from his eyelashes the cheerful gods
made earth in the middle for men;
and from his brain were the hard-tempered clouds
all made.
Here is all of that as stated in Gylfaginning (ridiculously long quote incoming. You've been warned.):
And when the rime and the blowing of the warmth met so that it thawed and dripped, there was a quickening from these flowing drops due to the power of the source of the heat, and it became the form of a man, and he was given the name Ymir. But the frost-giants call him Aurgelmir, and from him are descended the generations of frost-giants, as it says in the Shorter Voluspa: "All sibyls are from Vidolf, all wizards from Vilmeid, all sorcerors from Svarthofdi, all giants from Ymir come."…Not at all do we acknowledge him to be a god. He was evil and all his descendants. We call them frost-giants. And it is said that when he slept, he sweated. Then there grew under his left arm a male and a female, and one of his legs begot a son with the other, and descendants came from them. These are frost-giants. The ancient frost-giant, him we call Ymir…The next thing when the rime dripped, was that there came into being a cow called Audhumla, and four rivers of milk flowed from its teats, and it fed Ymir…[Audhumla] licked the rime-stones, which were salty. And the first day as it licked stones there came from the stones in the evening a man's hair, the second day a man's head, the third day there was a complete man there. His name was Buri. He was beautiful in appearance, big and powerful. He begot a son called Bor. He married a wife called Bestla, daughter of the giant Bolthorn, and they had three sons. One was called Odin, the second Vili, the third Ve…Bor's sons killed the giant Ymir. And when he fell, so much blood flowed from his wounds that with it they drowned all the race of frost-giants, except that one escaped with his household. Giants call him Bergelmir. He went up on to his ark with his wife and was preserved there, and from them descended the families of frost-giants…They took Ymir and transported him to the middle of Ginnungagap, and out of him made the earth, out of his blood the sea and the lakes. The earth was made of the flesh and the rocks of the bones, stone and scree they made out of the teeth and the molars and of the bones that had been broken…Out of the blood that came from his wounds and was flowing unconfined, out of this they made the sea with which they encompassed and contained the earth, and they placed this sea in a circle round the outside of it, and it will seem an impossibility to get across it…They also took his skull and made out of it the sky and set it up over the earth with four points, and under each corner they set a dwarf. Their names are Austri, Vestri, Nordri, and Sudri. Then they took molten particles and sparks that were flying uncontrolled and had shot out of the world of Muspell and set them in the middle of the firmament of the sky both above and below to illuminate heaven and earth. They fixed all the lights, some in the sky, some moved in a wandering course beneath the sky, but they appointed them positions and ordained their courses. Thus it is said in ancient sources that by means of them days were distinguished and also the count of years…On the earth on the inner side they made a fortification round the world against the hostility of giants, and for this fortification they used the giant Ymir's eyelashes, and they called the fortification Midgard. They also took his brains and threw them into the sky and made out of them the clouds, as it says here…
In the edition of the Prose Edda that I'm pulling from this passage (unabridged) takes up 2 and a half pages. Sorry for just dropping in such a huge quote in the middle of this but I really want to make it clear just how much expanding on material Snorri is performing. As you can see, the two poetic excerpts cover roughly the same material as the prose excerpt, but each of the poem excerpts take up 8 lines, that's only two stanzas from each poem. So is Snorri making up all these details himself? Is he relying on sources that no longer survive? There are several poems that Snorri quotes from in Gylfaginning which do not survive outside of the small piece used in the Prose Edda or we only have a few other small pieces of them that survive in other manuscripts. In the Snorri passage I quoted he mentions the Shorter Voluspa. This is one such example. The only surviving pieces we have are the quote in Gylfaginning and some stanzas interpolated into Hyndluljoð.
Was there perhaps some other prose sources that haven't survived that Snorri may have pulled from? Or did he rely on oral histories passed down through the generations? How much did Snorri's Christianity influence how he described and portrayed the mythological events? It is impossible to know where Snorri pulled all his information from and it is impossible to know exactly how much stuff Snorri just added in because he felt it thematically appropriate or what have you. You can see for yourself how much more detailed he was compared to the older poetry. But he did not make the mythology up out of nowhere. Most of the stories he details in Gylfaginning have related passages in at least one of the poems in the Poetic Edda or in poem fragments found in the sagas. Whatever he may have made up, he was basing it around the cultural memories and remnants passed down from his ancestors.
P.S. – I'm not even touching on issues surrounding a lack of "official" pagan religious canon at the time or non-Icelandic sources for details about the mythology. For discussion of just how much variation there could be in beliefs check out my previous answer on Norse beliefs related to death and Valhalla. The best example of a non-Icelandic source for Norse mythology are the first 9 books of Gesta Danorum (which was written down before the Prose Edda and has different details on certain stories such as the death of Baldr).