There are different versions of this anecdote, which I first encountered in A.N. Wilson's biography of C.S. Lewis. But the basic story is that Hugh Dyson, one of the Inklings -- the writing group that also included C.S. Lewis and J.R.R. Tolkien -- had a tendency to recline during Tolkien's readings while uttering comments like "Oh Christ, not another fucking elf!"
It is for this contribution to the field of Tolkien criticism that Dyson is now chiefly remembered. One can sympathise with Tolkien: The Lord of the Rings was recently voted the most popular book ever by some British newspaper -- was Tolkien not unfortunate, then, to encounter someone like Dyson among his earliest readers?
Yet I can sympathise with Dyson too -- there are some among us for whom a little elf goes a long way. And I would argue that, while "O.C.N.A.F.E!" does not sound much like constructive criticism, we can't be sure Dyson's remarks were useless to Tolkien. This is pure speculation, but conceivably Tolkien's early drafts were especially elf-ridden, and Dyson inspired him to use a little more restraint, helping him to make his final version more widely accessible. For even when critics pelt you with excrement, there may be seeds of truth therein.
In this interpretation, elves might represent whatever is excessive in a writer's early drafts -- whimsical and precious elements that have to be pruned, those minor characters who turn out to be surplus to requirements, or the kind of writing Dr. Johnson was thinking of when he advised, "Read over your compositions, and whenever you meet with a passage which you think is particularly fine, strike it out."
I'm playing devil's advocate here, but if Dyson had said, "Excellent work, the central conflict of our times imagined in a form resplendent with echoes of Anglo-Saxon and Celtic literature, although I do find some of the elvish characters a tad tricky to distinguish from one another," would Tolkien even have heard the last part? Perhaps sometimes one has to say "O.C.N.A.F.E!" to get one's point across?
"Pay no attention to what critics say. No statue has ever been put up to a critic." -- Jean Sibelius. Although actually Alex Ross has noted at least three cases of statues being put up to critics.