These lines refer to a strange naturally occurring phenomenon in grassy meadows and lawns called fairy rings. A fairy ring appears as a ring of lush green grass which slowly expands outward. It’s caused by a fungus which attaches itself to the roots of the grass; as the fungus spreads outward and dies, it provides nutrients which nourish the grass above. According to the folklore of Shakespeare’s day, these rings were caused by fairies, and it’s the job of the servant elf to water these rings for the Fairy Queen.