Russell's paradox arises within naïve set theory by considering the set of all sets that are not members of themselves. Such a set appears to be a member of itself if and only if it is not a member of itself. Hence the paradox.
The "root" of the paradox is the so-called unrestriceted Comprehension Principle of naïve set theory:
for every property φ(x) expressible in the language, there is the set { x: φ(x)} of all and only those objects satisfying that property.
The paradox arises considering as φ(x) the property “~(x ∈ x)”.
Zermelo's solution to the paradox is built on the replacement of Comprehension principle with the Axiom schema of specification:
in order to assert the existence of the set B satisfying the property φ(x), we have to "separate" it from an already existsing set A.
How does Zermelo's theory avoid Russell’s paradox?
Assuming the existence of V – the whole universe of sets – and let φ be x ∉ x, a contradiction again appears to arise. But in this case, all the contradiction shows is that V is not a set.
All the contradiction shows is that “V” is an empty name, i.e., that it has no reference, that it does not exist.
In conclusion, the non-existence of the set of all sets is a feature of Zermelo-Fraenkel Set Theory.
There are Alternative Axiomatic Set Theories, like Quine's New Foundations, where the universal set V exists.
The impossibility of "circular" sets, like e.g. x ∈ x, is due to the Axiom of regularity.
The axiom implies that no set is an element of itself, and that there is no infinite sequence {a(n)} such that a(i+1) is an element of a(i).
Ther are other axiomatic set theories that are non-well-founded, i.e. that allow sets to contain themselves and otherwise violate the rule of well-foundedness.
Conclusion : a set containing itself is not per se a paradox. Paradoxes can arise in cooperation with other basic assumptions regarding sets.
The universal set is an example of "set containing itself" and its conception is quite natural.