As it turns out, the Overlord will actually have to do some grinding (e.g. revisit the Nordberg Sanctuary several times), if he wants to forge the two helmets and two armours, plus 3-4 of the new weapons, easily requiring 170 or more Fairy Gems.
It should be noted that there is a certain level of randomness to collecting Fairy Gems, and this is also related to the number of gems the Overlord already has collected. With less than 10 gems, a visit to the Nordberg Sanctuary may easily yield another 10 gems, with 40 gems already collected you may only get another five or so.
- They can be "mined" from pink-ish crystals found e.g. in the Nordberg Sanctuary.
- Be sure to destroy the stylized "fire columns" with the pink-ish crystals on top, these yield Fairy Gems in the sanctuaries.
- After stunning dryads, and destroying the central pod, it will also yield Fairy Gems, only once though, again in the sanctuaries.
- Fairies sometimes drop them, e.g. in the Nordberg Sanctuary.
- Gnomes sometimes drop them, try the Everlight Facility.
- Mermaids on the yellow-key island in the Everlight Reef.
- The elves e.g. their warriors, but also the normal elves e.g. in Everlight Town drop them.
- Loot, e.g. barrels or wooden boxes, very rarely yield Fairy Gems.
- The Unicorns drop them,try to wait the battle with The Devourer a little and you will earn more than 10 of them.
- The Giant Frogs sometimes drop them,try the Empire Sewers.