Hard to explain why myths and the process of mythmaking fascinate me so much, but I find they infiltrate and color a lot of my thinking about writing. Legends are interesting to me as well, but not quite to the degree as mythmaking, which I think has a direct hotline to the human psyche.
I would define a legend as a story passed down from the past, that purports to be historical. We often find an actual, verifiable person or event at the root of a legend, which may sometimes be the defining story of a particular culture. This "legendary" character, after being kept alive for centuries or even millennia as part of a culture's collected wisdom, can take on mythic dimensions with deeper significance.
From the Greek mythos, myth is most often defined as a pattern of beliefs that symbolically express the characteristics or prevalent attitudes in a group or culture. It's that word "attitude" that makes the difference to me. Myths are traditional stories through which a culture’s world view or explanation of natural phenomena can be expressed. The emphasis here is on describing and explaining the natural world and by extension, the humans who live in it.
A myth is not quite the same as a legend. Sometimes a myth is loosely based on a real event, but more often it is a story that has been created to teach people about something intangible. Myths based on legends alter the story in ways that model behavior and affect patterns of thought. Which might bring you to ask, what’s the difference between mythology and religion? The quick answer is, not much, but for the purposes of discussion, we can make this distinction. Religion is a system of beliefs and practices regarding a supreme being or supernatural phenomena; it can be a personal set of beliefs or an institution of rituals and rules. The emphasis is on belief in (and one’s relationship to) a specific supreme deity.
Campbell describes religion as a specialized attitude toward myth ... which brings us to the mythic impulse, a concept at the crux of modern mythmaking and a topic I'll save for next time!