Legend is what you get left when history has fossilised part of the Past, and some more has been wardrobed into tradition. Legend tends also to be the bits which people don't want you to believe (for example that the Norse were ever anything other than polite well-mannered people who navigated long distances to bring culture and civilization to Other Lands. And all that about burning down monasteries and so on is pure legend -- because, by now, the Normans are the Governing Class).
In period, legends were probably as much a part of historicity as chronicles. Many people couldn't/didn't read and write, and the oral version, spoken and heard, was (unless by way of a bard who 'as-we-all-know' have flawless recall and a total commitment to veracity no matter what) basically one person's version of what had (or ought to have) happened.
Legend allows for a re-editing process to shade the past without actually destroying it. Without it, the trolls would be stone-dead, the dragons just lizards with bad breath, and Arthur a Hollywood caricature.
In short, Legend is the mything link