Where the Wild Things Are

"And Ouranos came, bringing on night and longing for love, and he lay about Gaia spreading himself full upon her. Then the son from his ambush stretched forth his left hand and in his right took the great long sickle with jagged teeth, and swiftly lopped off his own father's members and cast them away to fall behind him. And not vainly did they fall from his hand; for all the bloody drops that gushed forth Gaia received, and as the seasons moved round she bare the strong Erinyes and the great Gigantes with gleaming armour, holding long spears in their hands..." 

                   -- Hesiod, Theogeny (trans. Evelyn-White)

In your world, where do monsters come from?

Dungeons & Dragons is full of terrible beasts and malevolent creatures. Dragons perch atop mountains or live inside abandoned fortresses with their captured treasures. Hideous Lovecraftian horrors exist in the depths of the earth, hungry or mad for power. The surface world is hardly better, with creatures of all shapes and sizes (and sapience) wandering about, threatening to waylay travelers and (sometimes randomly) encounter adventuring heroes.

Goblins, gnolls, medusae, giants, trolls, owlbears, bugbears, bulettes, dire rats, giant spiders, chimeras...

How do these creatures all... fit together? What does the ecology of a fantasy world look like?

Not every game needs to answer these questions. After all, Dungeons & Dragons and tabletop RPGs in general are about telling stories, and no one stopped the Oedipus story to ask where the sphinx came from.

To be honest, many players and DMs probably don't care or don't think about it. It's not really important what a 15-foot giant eats when all you care about is killing it and taking its loot. But the questions that arise when trying to make sense of a fantasy ecology can shape a campaign or setting in interesting ways. For example:

What do giants eat? Or dragons? Or any large creature? How do these things sustain themselves?

Maybe there's only one such large creature in a given environment. For something like a dragon, that makes sense. They're long-lived and can reproduce once in a great while. What about other large creatures? How many seven-headed hydras are there running around in the swamp? Is there a family of them? If not, where the hell do they come from?

What about intelligent creatures? There might be tribes of goblins/gnolls/orcs/whatever, but is that enough to sustain a population? How do these species not go extinct or inbreed themselves to death? How did all these different species separately evolve into being bipedal and intelligent? Did they evolve?

Interesting ways to solve this:

1. Monsters spontaneously generate from somewhere. This is sort of the "blood of the gods" concept, where monsters just spring up. Strange creatures arise from the earth, or deep within the earth, or maybe cross into our world from another dimension or plane. This is probably the simplest solution, because questions of ecology, reproduction, etc. don't really matter. 
2. Monsters are created by the gods. This is, I feel, the Greyhawk answer. (I'm not familiar with Forgotten Realms so it might apply there as well.) This at least solves the question of what are all these intelligent races doing running around on the planet. Elves were created by the elf god, orcs by the orc god, and so on. Maybe some psycho god decided to start creating monsters, too. 
3. Monsters are actually not that rare. This is how the Eberron setting handled things, it seems to me. Magical beasts were common enough that they were accepted as part of nature. Monstrous humanoids are common enough that they had (in the case of giants) or have (in the case of gnolls/trolls/ogres/etc.) their own nations and societies. Even the dragons have an entire continent more or less to themselves.
4. Monsters stay hidden. I suppose I could call this the "Harry Potter" concept. Monsters exist, but they are distant from cities and inhabited areas. It is rare that common folk will encounter giants or dragons or a horrific winged tentacle beast. Maybe they're out there, but only for the heroes that go looking for them. A large monster like a rehmoraz wandering into an inhabited area is almost a world-shattering event. No one in the village/town/city is prepared for such a thing, because it is all but unheard of. In this scenario, a monster attack could be akin to a natural catastrophe like the 1906 San Francisco earthquake or the blizzard of '77. 
5. It doesn't matter. I guess this would really be the simplest solution. You're just trying to tell a story. Monsters are there because they are, because the heroes need challenges and obstacles. They need foes to battle. The show must go on!
6. Humans are the real monsters. Maybe your game doesn't need to answer these questions at all because violent, monstrous beasts aren't the focus of the story. You'd rather light up your pipe, put on your robe, and contemplate man's inhumanity to man. This works well for games/settings that revolve around war, politics, or intrigue. 

What do you think? Do monsters need an explanation? How does your game or setting answer these kinds of questions?