Physically, it was dark blue or dark green (dust jacket was long lost). I read the book in the 70s, but it was much older. I would guess it was published in the 30s or 40s. It had simple black and white illustrations.
There was one story (whose name I can’t remember) about two children — a brother and sister who are in the woods. They come to a tree stump with a strange knot on it. When they sit on the stump and touch the knot, they fall into an underground world. There, they are tormented by scary monsters. They … do … something (sing a song about being brave, maybe) and the monsters turn into fairies. It turns out that they were fairies all along, and had been cursed to be monsters until someone did that thing. One of the monsters looked like a giant carrot.