I have read that duende can mean both a mythical creature or, metaphorically, a kind of magical sensation to something. What exactly does duende refer to in both senses? How would both of these senses be best translated to English?
As you said, Duende has two basic meanings:
Mythical Creature Traditionally it refers to a mischievous spirit that inhabits a house. Now it's also used to refer to small creatures with magical powers; they usually are very skinny, have big heads, big eyes and long ears (also, Santa's Helpers are called "Duendes de Santa Claus").
Feeling It's almost exclusively used in Flamenco. It's a mysterious sensation that is very hard to define. More here.
Over all, it's a very complex word, it has a lot of history, and can be used in several sentences, and mean something different in each one, but it's always something special.
There are several words that can work as a translation for duende:
They may not be an "exact" translation, as the folklore in each region is different and the characteristics of these mythological beings can vary slightly.
For the second meaning, I found "to have charm" as a possible English translation for "tener duende".