The Red Caps are a gang of elves in the now-defunct City of Heroes MMO.
They mostly hang around in the woods outside Croatoa and look to cause trouble.
Their origins have varied depending the source.
Some say they are cursed elves, perhaps even the very elves that Santa Claus would use to make toys, which would explain their use of red stocking caps. Others say they're just goblins pretending to be elves.
What is known is that they are nasty creatures that you should not try to cross.
Red Caps have several allies, including wisps that can bolster their powers and deprive their victims of others.
They also have a "leader" of sorts: Jack in Irons. He's a giant monster that was lured to Croatoa by the Red Caps for protection.
They also have Snaptooth. But they don't want to talk about Snaptooth.
(See their Paragon Wiki entry for more information.)