Dear Aunt Debbie,
I agree with you, Bettelheim, and Kathryne that there are good reasons to read fairy tales to kids: they're a way of working through fears safely, they're exciting, and they are referenced throughout our culture. I think the age at which you read them to a child, and the versions you read, has to be specific to the child -- you learn by reading what's going to scare the pants off your kid, and what she or he will adore. I agree with Rachel as well that I'm not thrilled with a lot of the motherlessness in these stories, but I think I understand why it's there.
When we started reading fairy tales to Eleanor (and we were certainly spurred to do this earlier than I might have by the ubiquity of Disney princess stuff), she went through a brief period of time when she'd say to me, "I want a stepmother." She said it thoughtfully, not in anger. Perhaps, in her mind, having a stepmother was a way into the fairy tale world, since so many princesses (Cinderella, Snow White, Ariel, Belle) begin their stories motherless. In a way, it reaffirms the power and safety of having a mother: if any of these princesses had mothers around, none of the bad stuff (and none of the adventure) would have happened to them in the first place. When I explained that telling me she wanted a stepmother hurt my feelings, she began to lean over to me fondly at odd moments and say, "Oh, Mommy, I love you. And I don't want a stepmother."
Rachel's comment brought to mind two of my favorite chapter books from my elementary school years. In each, the protagonist(s) are orphaned, thus opening their lives up for adventure that wouldn't be possible if they had a mother and father taking care of them. I haven't read either book in years, but I'm pretty sure they stand the test of time.
The Boxcar Children, by Gertrude Chandler Warner, focuses on a family of four kids who are orphaned. They run away from their orphanage and a grandfather they think is cruel (though of course ultimately they're wrong) and live in an abandoned boxcar with their dog, Watch. I remember scenes of homemaking in the boxcar, and the sense of having to create a whole new life. In looking it up, I see that it was the first in a giant series, though I don't remember reading any of the others.
A Little Princess is by Frances Hodgson Burnett, of Secret Garden fame. Sara Crewe begins motherless, and is orphaned when her father dies in India (the book was first published in 1904, so it's quite Imperial British Empire). She goes from being one of the richest pupils at a boarding school run by a meanie to being the poorest, and in a Cinderella turn she has to do the school's housework and live in the attic. Again, one of the things I remember most fondly about the book is Sara making her attic space livable and even homey. This one has the added benefit of cruel boarding school girls, which resonates with anyone who's ever been a girl around other girls.
Now that I think about it, in both of these books there isn't much active adventure -- more creating the best and most home-like situation possible in bad circumstances. I suppose that's true in fairy tales like Cinderella and Rapunzel as well. Still, there must be something liberating about projecting yourself into the dangerous and adventurous situation, and then comforting about being able to turn again to mom on the couch beside you or in the next room.