Form Criticism was applied to the New Testament by K. L. Schmidt, Martin Dibelius, and Rudolf Bultmann. Their work was based on the form criticism popular in Old Testament studies which divided the text into individual sections (pericope, plural, pericopae) and determined a “mini-genre” for each pericope. These sub-genres included proverb, wisdom saying, I-saying, myths, legends, etc. Once a pericope has been determined and a sub-genre assigned, the form critic would then attempt to construct a plausible Sitz im Leben for the pericope – the “situation-in-life” that might have generated the story.  For example, a miracle story could have been invented in a situation where the divinity of Christ was in doubt. Such a “legend” attempted to give Jesus divine qualities in order to support developing Christology of the early church.

via Behind the Gospels: Form Criticism.