So, what is the Fairy-type?
While Fairies existed as fantasy tropes since time immemorial, they have rarely been significant. Fairies have existed either nature spirits, local deities, or small magical creatures to be exploited with. However unlike the most of the other species in this realm, Fairies seem to be popularized by two games, one being SMT, where Fairies exist as early-game magic users, Touhou series, where fairies exist as early mid-bosses and mooks, and Legend of Zelda, where fairies are the most important races in all of Hyrule. The most conventional archetype for fairies is not the Shakespearean version of middle sized magical sprites with ridiculous sex drives and world shattering menstrual problems, or earlier Gaelic fairies who are just absurdist monsters; but rather Tinkerbell from Disney's interpretation of Peter Pan.
The latter is also where Pokémon takes most of its inspiration from, but Fairies also serve another role. Historically, Dark-type was opposed by Psychic-type, but Psychic-types are more oriented stage magic and modern espers than what Pokémon franchise wanted to be, white mages. With the absence of a proper cleric class, with or without a divine association, Normal and Psychic-types had to be used for this role. But as Dark and Ghost evolved into proper dark arts types, there needed something to combat them. In addition, there needed to be some way to reverse Psychic-type's decline. As for other reasons why Fairy-type was created, we will get into them right now.
The Pre-History of the Fairy-type: Fairy Egg Group:
Historically, Pokémon has always had species designed for female fans predominantly. Clefairy and Jigglypuff are the most famous ones of the early era, as Clefairy was intended to be the franchise mascot, and Jigglypuff serves as a historical secondary mascot of the first generation. However, though these species had powerful movepools, they did not have powerful stats, especially in the first generation when the franchise was so heavily focused on physical types.
These initial cutemons were Normal-types with immense variety of moves. The idea was that these species, with their vast capabilities would climb up despite their statistical issues, or at the very least would manage a role in the in-game teams. This compensation did not work, so, GameFreak created two new mechanics, one was the genders and gender ratios, and the other was Egg Groups. Adding a breeding mechanic seemed to make sense, as it would create tons of cute babies, fire up girl trainers' motherly instincts. The new gender ratios would also showcase which species was more feminine and which weren't, which allowed the franchise to utilize more generic gender stereotypes, to please both sides. Predictably, Male-only species got better due to offensive orientation of the metagame.
This, of course, did not pan out as planned. Movesets might break Pokémon, and breeding chains may make silly species relevant once or twice, but they do not make Pokémon. And true to this fashion, Fairy Egg Group, was one of the limited Egg Groups, requiring Field to be its intermediate. The third generation set out to fix this, by first granting Fairy Egg Group more stuff to work with such as the awesome Breloom, but also created Contests, where Pokémon would exclusively compete with their movesets. This was expected to fix the cutemons' lack of power, and grant them a new flamboyant design. However, GF saw that initial contests were, while fun, were also far too repetitive with lack of competitiveness. So, instead of fixing this problem, they added in a dancing rhythm game and a dress-up feature. These characteristics ultimately lived on DLC nonsense Pokémon Musicals, which ultimately broke the Contests until they were brought back as regional fluff.
In this time, there has been a few things going on. One was the ongoing decline of Psychic-type. In addition to being reduced to a gimmick type, Psychic-type had another unfortunate thing going for it. Its color. Psychic powers were generally represented with pinkish auras, so we ended up with a type that is pink colored. And of course, Pink is the Gurrl color. Actually, for Gen 2, Normal-type was the Pink type, but since GF decided to retcon that, we ended up with Psychic as the girl type for a while. To this end, Psychic-type was given several cleric moves like Healing Wish and Heal Pulse, and GF really tried to make it a White Mage-type, but that failed miserably. So, the alternative to that would be to make a companion type to Psychic-type that would serve as an upgraded version of the type, similar to the mechanic between Water and Ice.
Another was the shift in the metagame, both in-game and in-competitive. The traditional poster-boy was Dragon-type for this change, but Fighting and Dark have improved drastically from the previous generations, while Poison floundered as time passed on. The presence of Dragon-types in the competitive was not an issue, but their presence in-game started to cause issues, as Dragon-types were designed to work for late-game, but were soon found out to be usable early-game as well, though overpowered. This shift was caused by a shift in GF's design, as GF now wanted Dragon-type to become a primary type of the metagame, and thus in TCG Dragon became its own type. However, since Dragon-type did not have a weakness to anything but itself in TCG, something needed to be done. In addition, rise of Fighting and Dark allowed more masculine species to come out, with several punk, biker and Fighting-type classes getting a significant presence in-game. Something needed to change.
The History of the Fairy-type:
And lo and behold, Fairy-type was created. Designed to be a Specially oriented type that would serve as Steel-type's equivalent for Special-types and the new Dragon-killer, Fairy-type immediately found home in many new and old species. Some of the early specifications of the type were for specific reasons. Its interactions with Fighting, Dark and Bug were designed to help out Psychic-type, similar to how Ice-type's effectiveness against Grass-type was designed to help Water. Its weakness to Poison and Steel was designed to buff two physically defensive but offensively lacking types. Its immunity to Dragon-types was designed to block Dragon-type's powerful STAB moves, which was their crowning achievement.
Many abilities Fairy-type had were taken from its parents, Normal and Psychic. Cute Charm was granted to this type as Fairy-type inherited Normal-type's cuteness. Sweet Kiss and Moonlight were taken from Normal-type as well. Many Fairy-types also gained Psychic-type moves, particularly either one of Psyshock or Psychic, as well as Grass-type moves, due to Fairy's role as a support type for these types.
In the seventh generation, Fairy-types were granted tons of new species, though mostly on the mediocre side statwise. These new species exploited Fairy-type's status as a cleric type, and made Sweet Veil and Telepathy, latter of which taken from Psychic-type as naturalized abilities for Fairy-type.
Sadly, no new common Fairy-types have not been introduced, and the new Abilities did not see much distribution. But previous generations' signature moves found new homes.
The Overview of Fairy-types:
Fairy-type is regarded as the best type of the current metagame. This is obviously untrue, they are the second best type in the game. Fairy-type, much like Ice-type in Gen I and Steel-type currently has the ability to make any terrible species good. This was intentional, as many Fairy-types have mediocre and balanced stats, due to their early history as a subset of Normal-types and their post-secession history as nature spirits and early-game species. Despite this, Fairy-type already has several species with tremendous BST.
Fairy-types are also great for coverage, when they are available. Because they are intended to replace to Ice-type and pre-Gen 3 Psychic-type, Fairy-type moves remain somewhat rare, available to only few low stat but powerful species, and early game fodder. This might change soon as Fairy-types get a similar distribution to Psychic-types in the current generations, but whether that will happen or not depends on how the type will evolve.