I am sure you played the game "telephone" when you were a little kid. The game was fun because what the initial person said did not match what the last person said. In many cases it was way off. The same can be said about historical events that were passed down over generations. Of course, much of history we know today is accurate. But this is because it was kept and documented very carefully. If however one is not precise in documenting history then it will turn into legends and eventually legend will turn into myth.
A good example of how history turns into myth is Iliad and Odyssey by Homer. This Greek myth is surprisingly based on a historical event. The Trojan war did take place as was discovered by archeology. However, the Greek version of the Trojan war is so far removed from how it actually taken place. The Greek version (Homer) is much more glorious. It is filled with miraculous events, it is filled with the gods communicating with mortals. The Trojan war started as a historical event that taken place. Over the years people changed the details of the story. Since the Greeks believed in the gods they added to this story that the gods must have intervened with the journey of Odysseus. The Greeks continued to glorify the story from generation to generation, history turned into legend, and finally the legends turned into myths. These myths were believed and part of the Greek people, so it remained for an author, Homer, to write them down.
But that is thousands of years ago, can one point to a more recent example? Certainly, just consider George Washington. Washington was a hero of the American people. The father of America, participated in the American Revolution. The people loved Washington. Just like with Trojan war the story of Washington has turned into a legend. There are stories that glorify Washington. For example, people may say that Washington never told a lie. Or more famously the story of how Washington chopped down a cherry tree when he was a little boy and admitted that to his father. Did the cherry tree legend really happen? No. That is just something people said about Washington over the many years after his death to glorify him.
I remember watching Bill Maher's "Religulous". He had in that movie a group of people who believed a giant is buried in their mountain. They had an outline of the giant's body on the mountain and the people in that region of the world authentically believed a giant is buried there. I think the same principle that was mentioned above can be applied to this story. A long time ago people said stories about giants that lived in that region. Then some people started to believe some giant died and was buried in the mountain. The people acted as if that was true and over the years this story was passed down to their children. As a result, you have a group of people in that region of the world who believe a giant is buried in their mountain.