Faerie
It has been years since I read Tolkien's essay On Fairy Stories. I found a website that has a pdf available for your downloading pleasure.
It's 28 pages long, so I'm going to print it out and re-read it outside under a nice shade tree. Before I re-read it, I don't have any direct comments about the essay, except to say that I believe it will provide you some food for thought.
(disclaimer: I have read and re-read tons o' Tolkien and have read none of the Harry Potter Books.)