Santa's elves belong to the complex of Northern European elves/fairies/hiddenfolk/pixies/etc. (fairies, here, for short), that coincidentally has had a large effect on fantasy literature. The Northern European complex of traditions shares some general ideas about the supernatural beings, and it shares many legends (narratives generally told to be believed) that are adapted by the various cultures of the region.
The region's fairies take various forms, and are particularly diverse when it comes to size. Regardless of what size is prevalent in a given place, they can all assume human size to that they can play similar roles in legends that have them interacting with humans - typically people cannot tell the fairies are supernatural until it is too late.
Thus, in some places, human size is the norm (Norway, and Sweden, Wales - which were particularly influential on Tolkien, for example) while in other places, the fairies are small (south west Britain; Denmark; and the wee folk of Ireland). Nevertheless, were they are human sized, the fairies can be described as small, and where they are small, they can assume human or even gigantic size - so there is no consistency even in a single area.
Many tributaries fed into the folklore surrounding Santa Claus, and the same is likely true of his elves. Scandinavian traditions have apparently contributed a great deal in this regard: there is a widespread tradition of elves who are bound to the house and/or barn who take care of things and behave in a friendly manner as long as they are treated with respect and are not spied upon.
Similarly, there is a Northern European tradition of these entities being particularly active at the winter solstice; this is true also of the Scandinavian household tomte/nisse. These coincidentally were generally though of as small even when their non-domestic equivalents were sometimes thought of as human shaped.
These factors apparently blended together to manifest in more recent North American traditions as Santa's elves.
The moral of the story: don't sneak a peak; treat them with respect; leave out goodies tonight. Trust me - they will appreciate it.