This chapter is where stuff starts to get dense, so I'm going to be slowing down right about now.
Starting from the beginning, you see the chapter preface (a quote from Henry Sutton) is setting the tenor for this whole chapter. Namely, since the trees and sea are "but a disguised humanity", he is implying that the forest itself is a parable for human beings. This is a common literary trope (often used in the bible as well, in particular using the sea as a metaphor for humanity but also occasionally trees), though even then the author's particular intended usage is not immediately clear.
There are a variety of trees mentioned by the author: the oak, the elm, the beech, the birch, the ash and the alder. Some of them are given defined characteristics, in particular the ash and the alder.
Also note that the story of Sir Percivale is foreshadowing, so pay attention to it.
The two trees described the most are the Ash and the Alder, but they appear in the story later, so I will discuss them in greater depth then.
Most of the rest of the chapter is consumed with the hijinks of the fairies. Once again, I think there is some room here for interpreting the fairies as symbols for people, but if so I don't know what sort of people they would represent. I find this line of thinking reinforced when I read the description of the city-country split in the fairy population. But if there is a deeper meaning here, it is one that I am not able to grasp.
It's possible that there is no symbolism here at all, and it's just a story told for entertainment's sake (not a bad reason). That was how I read it the last time through, but someone with a deeper literary pedigree than myself might have some other thoughts.
End of chapter 3!