The most common and most likely answer to this crossword clue is the 7 letter word FAIRIES
I've seen this crossword clue in The Daily Telegraph
F
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More clues leading to the result FAIRIES
Buddy explains!
The straight part
We know that "Little folks" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case little folks = fairies.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.
What does FAIRIES mean?
FAIRIES noun- The realm of faerie; enchantment, illusion.
- A mythical being with magical powers, known in many sizes and descriptions, although often depicted in modern illustrations only as a small sprite with gauze-like wings, and revered in some modern forms of paganism.
- An enchantress, or creature of overpowering charm.
- A male homosexual, especially one who is effeminate.
- A member of two species of hummingbird in the genus Heliothryx.