From the Super Mario Wiki
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An Elf (plural Elves) is a diminutive, pointy-eared, human-like species. Elves are employed by Santa Claus to work at his workshop. Their known duties are constructing toys and helping out with general chores. At the workshop the Elves have their own residences, as well as their own playground.
Elves were seen during the events of "Koopa Klaus", where they, along with the rest of Santa's entire workshop, had been frozen over by Koopa Klaus' Ice Bombs, and were essentially helpless for almost the entire episode. However, once the warmth of Toad's Christmas spirit melted the ice, the Elves were thawed out, and were able to assist Santa Claus in getting ready to make his Christmas Eve run.