The Fairy Hole is essentially the lifeline for the existence of the Fairy Kingdom.
Though fairies are creatures of the Path, they do not wish to live in the Dream Realm. Instead, they prefer to dwell near other intelligent beings.
As Transcendents describe fairies—our benevolent neighbors. Fairies always like to be neighbors with other creatures.
But they are capricious as well... Fairies enjoy bothering people but hate to be bothered themselves. They're like mischievous pet cats that only come to you when they wish; you mustn't seek them out.
Therefore, fairies usually reside in the Fairy Kingdom.