The elves are watching…always watching. That seems to be the extent of what they do, though, and they're as easily removed and destroyed as any inanimate doll. Choosing not to remove the elves and to allow them to continue watching will result in growing feelings of irrational paranoia.
While the number of elves seems to grow exponentially in the first few days of their appearance, overall there will be a finite number of elves (that is, after a certain point the elf population will decrease if characters are actively destroying them). Surviving elves may continue to relocate into the homes of characters (particularly the homes of those who have something to hide) right up until the end of the event, but players should assume that efforts to round them up and destroy them will be successful by the end of December.
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While the number of elves seems to grow exponentially in the first few days of their appearance, overall there will be a finite number of elves (that is, after a certain point the elf population will decrease if characters are actively destroying them). Surviving elves may continue to relocate into the homes of characters (particularly the homes of those who have something to hide) right up until the end of the event, but players should assume that efforts to round them up and destroy them will be successful by the end of December.