In "The Devil and Tom Walker", where are examples of Irving using or making up "legend" in this story.
Legends are typically stories that are passed down from generation to generation, usually by word of mouth. They may or may not be based in fact, but tend to get twisted and exaggerated with time as people elaborate.
In the first paragraph, Irving mentions that "old stories" tell of the Devil who presided by the tree where the treasure is buried. Right after Tom's wife disappears, it mentions that no one knows what happened, although many have pretended to as they retold the tale, and that many historians had written the tale. Later, Irving relates what he feels is the "most authentic old story" of what happened to her. Throughout, Irving uses phrases like "it is said" and "some say", and the last line mentions that the story has become a sort of proverb prevalent throughout New England.
All of these things indicate that Irving either wrote it to sound like it was a real legend, or that it actually was, and he was just recording it.