In Irish mythology, a leprechaun is a type of male faerie said to inhabit the island of Ireland before the arrival of the Celts.
Some folk traditions hold that the leprechauns are descended from the Tuatha de Danann. When the Milesians came to Ireland (according to the Book of Invasions) they conquered the Tuatha de Danann and forced them to live under ground.
When Christianity took religious precedence, the importance (and thus, the size) of the leprechauns decreased.
The leprechaun originally had a different appearance depending on where in Ireland he was found. Prior to the 20th century, it was generally held that the leprechaun wore red, not green. Samuel Lover, writing in 1831, describes the leprechaun as, “… quite a beau in his dress, notwithstanding, for he wears a red square-cut coat, richly laced with gold, and inexpressible of the same, cocked hat, shoes and buckles.”
The leprechaun was bestowed with the knowledge of the location of buried treasure, often in a crock of gold.
Info gathered from Monstropedia and Wikipedia.