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Avalon is the island home of Oberon's Children.
Avalon was formed at about the same time that the Third Race were, from magic. It was ruled over first by Queen Mab, then following her overthrow, by her son Oberon, who still rules there today.
Avalon cannot be found on a map of the world; it is reachable only by magic. Despite being part of the Earth, its true location is found at a rather large nexus of native Earth magic, and therefore is incapable of being reached in a three dimensional manner. To enter Avalon, Mortal must recite a Latin incantation while upon a body of water (which can range in size from the sea to a large washbasin).
Oberon's Children, on the other hand, can presumably come and go through their innate abilities, without needing water nearby. Leaving Avalon is somewhat trickier; it does not send you to where you wish to go, but to where you need to be.
Avalon is, in a sense, solidified magic, and an experienced human wizard can actually tap into that magic, as the Magus did during his battle with the Weird Sisters; it is not easy to do, however, and even cost the Magus his life. While faerie magic is permitted in Avalon, human magic (particularly that coming from artifacts such as the Grimorum Arcanorum) is not.
When traveling to and from Avalon, the island magically compensates by preventing its travelers from feeling the effects similar to that of jet lag. The island also assists by allowing its travelers to understand any native languages, dependent on who they are meant to interact with. This latter magical compensation appears to be permanent for individuals like King Arthur Pendragon and Angela, who both now speak modern English.
Because of its magical nature, time passes slower on Avalon; for every hour spent there, one day goes by in the outside world. It is also eternal summer there (by Oberon's decree. The water immediately surrounding the island is said to be a mix of both fresh and salt water.
Shortly after Avalon was formed, Queen Mab became the ruler of the Third Race, who were known in that period as the Children of Mab.
Mab had one son, Oberon who began a relationship with Titania, something qhich the Queen disapproved of. Mab was a tyrannical ruler, so much so that Oberon eventually overthrew her in a great war at some time after the birth of Merlin in the 5th century. With Mab defeated and imprisoned, Oberon became Lord of the Fair Folk, who were from that point on known as the Children of Oberon.
In the early 6th century, the wounded King Arthur Pendragon was admitted to Avalon for healing, and placed in an enchanted sleep within the Hollow Hill. Oberon, while disliking the presence of mortals on his island, permitted this because he owed Merlin a favor.
In 995, Oberon, angered at his Children's scorn and contempt for mortals, and particularly that displayed by Titania, banished the entire Third Race from Avalon for a thousand years, leaving the Weird Sisters behind to bar the entrance on a floating barge nearby. Shortly afterwards, Princess Katharine, the Magus, and Tom fled to Avalon with the eggs following Constantine III's usurpation of the Scottish throne. After the Magus defeated the Weird Sisters, the three refugees settled on Avalon with the eggs, and lived there contentedly (more or less) for the next thousand years.
In 1995, the Archmage decided to conquer Avalon, to use it as his base of operations for waging war upon the human world. He joined forces with the Weird Sisters, Demona, and Macbeth to attack the Avalon Clan and destroy it. The Avalon clan, aided by Goliath, Elisa, Bronx, and King Arthur (whom Elisa awakened from his sleep), defended its home against the evil sorcerer and his followers, and finally won.
Not long afterwards, Oberon and Titania returned to Avalon, and learned about the Avalon clan from the Weird Sisters. Oberon wanted to banish them from the island, but the Avalon clan created an iron bell and used it to defeat him, after which Princess Katharine persuaded him to let them stay. Oberon not only granted them permission to do so, but even made the Avalon gargoyles his guard of honor (a largely ceremonial role, but one Oberon does consider to be of value).
Afterwards, he held the Gathering, bringing home all of the Third Race (except for Puck, in the end).