I just finished reading Adrienne Mayor's excellent book, "The First Fossil Hunters", which is about how people in the Classical era found fossils and interpreted them as the bones of heroes or mythical creatures. Her book mostly concerns itself with the ancient Greeks and Romans, though. Do we have any records of how Europeans in the Medieval and Rennaissance eras interpreted fossils? What did they think when they came across the bones of creatures from the distant past?
It might also be interesting to look at this topic from another perspective and question how much people consciously interacted with fossils before paleontology became a scientific discipline. It is common to interpret mythical monsters as based on encounters with fossils, such as cyclopses on the Sicilian dwarf elephant Palaeoloxodon falconeri or griffons on Central-Asian finds of the Cretaceous dinosaur Protoceratops. But we must also recognise how difficult it actually is to recognise fossils when encountering them in the field. Even now, when we have specialists actively seeking for them it is still quite difficult to differentiate between a rock and fossilised bone.
The paleontologist Mark Witton has written a very interesting post about this on his blog in which he argues that the idea that monsters were based on fossil finds is probably overused. Not only because of the difficulty of actually recognising fossils as being fossils, but also because of the lack of systematic osteologic knowledge people had back then and (non-specialists) still have today. For one, he cites the example of how many bones attributed to dragons in China are actually just normal cattle bones with nothing special about them.
http://markwitton-com.blogspot.com/2018/04/unicorns-dragons-monsters-and-giants.html