I'm aware I cast a wide net in time and location, I apologize.
You did indeed cast a wide net! I’m going to focus on the medieval context, and specifically the Shāhnāmeh, since those are what I know best. I’d be curious to hear from those more familiar with the composition of the Ramayana and/or the Bible.
Getting at premodern beliefs about the supernatural, mythic, and legendary can be difficult for a number of reasons. One is that premodern people often had a different set of ontological and generic relationships to texts. Michelle Karnes writes about the “medieval tendency not to discriminate categorically between legends and facts.” This is not to say that medieval people were incapable of distinguishing between truth and falsehood, or that individual authors didn’t often have strong polemical takes on the reality of a particular being, event, or phenomenon. But they were just as likely to protest their ignorance, especially in regards to reports from distant lands or the distant past; variants of “I’m just reporting what I’ve heard/read, and God alone knows the truth” are frequent in both Christian and Islamic medieval texts.
Written works could also be understood in a huge variety of ways, of which literal truth was only one approach. Symbolic, allegorical, and analogical meanings were also crucial. A great illustration of this is the French Ovide Moralisé (late 13th or early 14th century CE), a verse translation of Ovid’s Metamorphoses that follows each story with a whole array of potential sens (“meanings/significations”) that the tale might have. These can include euhemerized history, Old and/or New Testament allegory, contemporary political commentary, and broader moral reflections. Different sens might be in direct contradiction; the god Apollo, in the same story, could be read as the Devil or Jesus. The point was not to highlight the “correct” interpretation, but rather to present a range of possibilities for understanding Ovid and incorporating his writings into a contemporary worldview. Bestiaries are another good example. These texts sometimes ascribe bizarre behaviors to common animals, and are in no hurry to parse the difference between observable traits, traditions handed down from Classical authors, and allegorical statements containing moral lessons.
The matter of bestiaries brings up another point, more specifically related to your question. Many “mythical creatures” have their origins in accounts of real, albeit exotic animals. Over time, and in the absence of physical specimens to observe or interact with, these creatures accrued fantastical traits (though again, medieval writers were also happy to supply perfectly mundane animals with similar abilities). The Etymologiae (“Etymologies,” early 7th century) of Isidore of Seville was a major reference work throughout the European Middle Ages. Essentially an encyclopedia covering virtually all branches of contemporary knowledge, the Etymologiae includes a section on animals that was central to the later bestiary tradition. Isidore describes animals including the draco (“dragon”), basiliscus, and unicornus. But though the draco certainly has some monstrous qualities--it flies and eats elephants--it is recognizably a description of a python. The unicornus, likewise an elephant-killer and impossible to capture without the aid of a helpful virgin, is clearly a rhinoceros. Isidore even says as much: the Greek name rhinoceron is in fact the headword for the entry. (Unicornus was also the Vulgate’s translation for the Biblical re’em, which is probably an aurochs or perhaps an oryx; a good reminder of how translation can collapse or conflate a variety of different creatures!) The manticore doesn’t appear in Isidore, but seems to have originated in Greek reports of Indian tigers. Sea animals in general were incredibly poorly understood until the modern period (and many remain so even now). With the exception of a few commercially important species, the line between biological marine entities and “sea monsters” was thin-to-non-existent.
So when we encounter a draco or a unicornus in a medieval text, we can’t necessarily categorize it straightforwardly as a mythical beast. Rather, it exists somewhere on a spectrum between modern, zoological understandings of the animal and transparent fabrication (like, say, Carroll’s Jabberwocky, which neither he nor anyone else believes to exist or have existed). A particular creature’s traits or actions may be more or less believable; the generic context (travel narrative? Chronicle? romance?) may also nudge the beast more towards one side of the spectrum or the other. In light of the points raised above, we might also look at the function of the beast at this particular point in the text. Is it filling a key symbolic or allegorical role? Is it talking? Metamorphizing? (Here too, the divide between “real” and “fictional” animals is shaky; a wolf is simply a wolf, until it is revealed to be a shape-shifting human.) Does it belong to a far-off country or distant time period? All of these factors are worth considering in trying to make sense of a particular medieval literary animal.
(cont.)