Do not capitalize a noun like granny unless it’s being used as a proper name. (They laughed at Granny, however, is correct.)
The quotation marks are wrong, too. If you really, really want to use them, you’ll have to rewrite the sentence: They laughed at Granny for putting out a saucer of milk — “For the fairies,” she said — but sometimes the old ways are not without reason.
Anyway, here are the original words with their punctuation and capitalization corrected: They laughed at your granny for putting out a saucer of milk for the fairies, but sometimes the old ways are not without reason.