"Lost Tales" and Trilogy discrepancy

[Knight of Gondor]

Only recently was I able to get a hold of the Lost Tales books. And I found them interesting, if for nothing more than elaborations on the Silmarillion. But why does Tolkien basically merge his ancient mythology with Earth's history?? The great island that uh...drat, I forget the name of the Sea-angel...dragged back, but Osse tried to stop him, and in the book this was put forth as the forming of England and Ireland! And it is said that the Elves faded as Men increased, and that the Lonely Isle became England, and all that...hello? Where does Frodo and Gandalf and Gondor and Isengard and Mordor and Sauron and Aragorn all come into the picture here? Did any body notice this? What's the deal?