At first sight, it might seem strange that fantasy needs the familiar at all. Surely the whole point about fantasy is that it's about otherness: other worlds, other kinds of being, other types of society. If I wanted the familiar, why not just watch Eastenders?
Well, to some extent; but fantasy without anything familiar would be difficult, if not impossible, to read. How could we relate to a society that has no merchants, inventors, artists — or even politicians? Could we be interested in characters who don't love and hate, have ambitions and fears? Who don't even have individuality?
I'm sure it's not impossible to write something like that, and no doubt someone has, and made it fascinating, but it would have to be the exception. For the most part, fantasy needs to be about people, whether they're explicitly human or in some other form. They might not be exactly like us — in fact, they almost certainly shouldn't, unless they live in a society with exactly the same values and perceptions as ours — but we need to understand them if we're going to care.
This is easiest in contemporary fantasy. All that's needed here is to start with what appears to be an ordinary tale of modern life — going to school or work, juggling relationships, having rows with parents, siblings or partners and so on — and then bring vampires, faeries or more unusual magical content into that life. It's less simple in otherworld fantasy, but there are standard solutions.
One of the more useful clichés of epic fantasy is to start the story in "the village". It doesn't literally have to be a single village, or even a whole village. It could be anything from one farm to a small country, like the Shire, but we're introduced first to ordinary people living ordinary lives. They don't have to be our lives (most fantasy readers today don't live on farms or in villages) but it's a way of life we're culturally programmed to understand.
Even when things are far from normal, the village is still necessary. Perhaps even especially necessary. For instance, Peter V. Brett's The Painted Man (which I reviewed here a couple of weeks ago) presents a society with unique issues that shape every aspect of how it functions. Nevertheless, we're initially presented with a village (two, in fact) where those differences can be specifically measured against the aspects of village life that never change, and probably never will, as long as there are humans.
The village isn't the only familiar starting-point. It can be a town, a city, an army or numerous other standard human situations, but they all serve the same purpose: to ground the reader before the wonders begin. This is where we learn to care about the characters, and to care about the way of life they're perhaps trying to save, before they set out on their adventures.
But, of course, most of us don't read fantasy for realistic portrayals of life in a village. Somehow or other, the characters we follow are those who raise their eyes to the mountains and long to find the distance. We want battles, enchantments, danger, bizarre lands, jewelled cities, strange beings, gods and demons, and dragons. Naturally.
All of this — the exotic — is why we read fantasy rather than any other type of literature, but it wouldn't be exotic with the familiar to experience it. The familiar, whether they're hobbits, market traders or orphaned farm-boys, are the avatars through whom we experience all that exoticness, whether the experience is beautiful or horrific. If we didn't care about them and their little lives, why would we care about the wonders they see?
The familiar and the exotic: the twin gateposts to the realms of fantasy. If the tension between them fails, the gate will collapse and we'll be shut out.