It's getting more popular here (UK) too. This will be the third year our elf, Errol, visits us. His first year Hayden would have just turned 2 and he loved him. So much so that when we put him next to the stockings and told him Santa would pick him up and take him back home, Hayden grabbed him and ran off shouting 'No! My Errol!'
You can really do whatever works for you, I don't know what the book says as we don't have it, and our elf is a soft toy, not the original. Here's how it works in our house:
Errol arrives 1st december and hangs and fills the stocking garland we use as an advent calendar. He also brings a letter from Santa, explaining why he is there and what Santa would like the children to do. He is not there to spy - he is a mischievous elf and Santa wants him to learn to be kind and helpful, and the main thing is that his visit is fun for everyone. What he does during the rest of his visit depends on what we are doing, and whether I am working. On busy days with not much time he will usually just hide somewhere fun, like in the Christmas tree, or the kids' wellies if they are going out in them. If I have time the night before he might be found playing with the kids' toys (he has built things with Duplo, formed a band with other Christmas cuddlies, and ridden on a train set for example) or he might play a little joke, like hanging the kids' underwear on the tree. If the kids are going to be home he might leave a craft activity, like making paper chains or a little tree decoration. He once spent an entire evening making paper snowflakes and stuck them on the window. Occasionally he brings a little present, usually Christmas books or DVDs. He is not particularly naughty, and does not make big messes. On the morning of Christmas Eve he always brings new pyjamas to be worn on Christmas morning, and ingredients for reindeer food to be sprinkled on the lawn (porridge oats and edible glitter). At bedtime we put him by the fireplace with Santa's mince pie and glass of milk, and Santa takes him home when he delivers the presents. The kids really seem to enjoy it, and Hayden has already asked if he will come this year. It can be a bit time consuming, but I enjoy it too, so I don't mind.
Pinterest is good for ideas x