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Sources
One of the reasons why Chinese mythology is so confusing is because it is a predominantly folk tradition. Educated people spent their time writing essays, treatises, poetry, epic verses, histories, but never about the most common myths and beliefs. It wasn't until the Ming Dynasty (1500's) that novels became popular, and some writers recorded the stories that were being told in the teahouses, etc.
There are three major works that deal almost entirely with mythological/magical characters. The most famous is Journey to the West, Xi You Ji (), about the famous Monkey King and his adventures with Tang Sen, the monk. The spiritual world that I describe is based mostly on that. Another book is Feng Sheng Yan Yi (). Anime fans may know the Japanese adaptation, Houshin Engi. The spiritual world described there was slightly more chaotic, as it is about the country of Zhou revolting against the Emperor of ShangTang, and a gathering of forces from many sources. Buddhistvas were dropping by for a few days, and many sent their diciples. There was no real distinction between Daoism and Buddhism, and there were daoists, etc on both sides of the army. The third book that deserves to be mentioned is Liao Zhai (), which is a collection of folktales about spiritual demigods, ghosts, spirits, and their interaction with humanity.
Besides these three major works, there are only collections of short stories written by Han Fei Zi (). This is why everything is so vague.... barely 1/10 was passed down, and often the stories varied with the geographical region.