When I first became interested in folk songs nearly everybody I came into contact with more or less agreed what they were because there was a consensus. They were the songs that could be found in The Penguin Book of English Folk Songs from 'All Things Are Quite Silent' to 'Young Girl Cut Down In Her Prime'; or in The Singing Island (apart from the few contemporary ones in there). The songs we didn't know, we recognised by their sound, characterisation, geographic and social references, their tunes and their poetic forms. We weren't too worried about definition because we knew what we meant. If we were asked to explain folk song we were more-or-less satisfied with the definition agreed on in 1954 by the International Folk Music Council:

"Folk music is the product of a musical tradition that has been evolved through the process of oral transmission. The factors that shape the tradition are: (i) continuity which links the present with the past; (ii) variation which springs from the creative impulse of the individual or the group; and (iii) selection by the community, which determines the form or forms in which the music survives.
The term can be applied to music that has been evolved from rudimentary beginnings by a community uninfluenced by popular and art music and it can likewise be applied to music which has originated with an individual composer and has subsequently been absorbed into the unwritten living tradition of a community.
The term does not cover composed popular music that has been taken over ready-made by a community and remains unchanged, for it is the re-fashioning and re-creation of the music by the community that gives it its folk character."

After a while the water became muddied and eventually some of us retreated to the term 'traditional', so as not to be confused with much of the material that was being performed at some of the 'folk clubs'. The term folk became a convenient pigeon-hole in which to file anything that didn't fit into any other category. Personally, I still find the words traditional and folk, when used in the same sentence, tautology.
When I became interested in traditional singers (source singers, for the want of a better description), I began to come to the conclusion that the songs I thought of as folk/traditional served a function within the communities I came into contact with (Travellers - Irish and Scots, agricultural workers, Norfolk fishermen, Irish building workers etc.). That function was distinct from all other types of songs to the singers we met. Sure, they were entertainment, but they were also a way of recording their history (great and small events), aspirations, emotions, national and social pride, anger; anything that affected them personally and as a community. Many of the singers, contrary to popular belief, categorised their songs; 'the old songs', 'come-all-ye's', 'my father's songs', 'fireside songs'; some singers in the West of Ireland used the term 'traditional'. Norfolk singer Walter Pardon spoke of 'folk songs' and was extremely articulate in separating those songs from his music-hall, Victorian tear-jerkers and the pop songs of a bygone age that he also included in his repertoire (please don't make the mistake others have in putting this down to his contact with the revival – anybody who knew Walter will tell you he was very much his own man).
Bert Lloyd suggested in his book 'Folk Song In England' (1967) that maybe the term folk needed re-defining, but it seems to me that that rather than that re-definition having taken place there has been an abandoning of any definition and the terms, traditional and folk, when applied to song, are now totally meaningless.
I agree absolutely with Anahanta that we are not necessarily talking about a type of song, but a process that produces a certain type of song. I don't know whether the process that produced the songs is still in operation; the communities that gave birth to the songs have either disappeared or have changed beyond all recognition. People no longer express themselves to each other with songs or record events within their communities, rather they/we have become passive recipients of entertainment and culture – television has seen to that. Nowadays people, particularly young people, are more likely to communicate via a mobile phone!
Most of the songs being written today, even those in the folk style, are introspective and private; as a friend said to me, you feel like tapping the singers on the shoulder and saying, "hello, can I come in".
Somebody suggested that we can't live in the past – of course we can't, but we can certainly continue to receive our inspiration and stimulation from the old models. I still am moved by the old songs and ballads; I still get angry when I hear a story of a man transported thousands of miles for trying to feed his family, or of a farmworker forced into war by a press gang. The Duke of Athol's Nurse still makes me laugh and I continue to be excited by the epic exploits of Long Johnny More. These songs and ballads as far as I am concerned are as timeless as Homer and Shakespeare and Dickens and Hardy.
It seems to me that at one time some of our modern singers were using the old models to create new pieces. MacColl, Liam Wheldon, Pete Smith, Eric Bogle, Cyril Tawney, Leon Rossolson and a handful of others were writing songs that stood a chance of being listened to by the next generation. That doesn't seem to happen so much nowadays. Con 'Fada' O'Drisceoil and Adam MacNaughton still continue to make me laugh, but most of the others leave me cold.
Malcolm Douglas summed it up perfectly for me right at the beginning of this thread:
"Our descendants, on the other hand, may inherit some sort of tradition from us. It will depend on whether or not we leave them anything worth having".
Jim Carroll