Dwarves in Middle-earth have a reputation for being greedy, self-centered and caring only for wealth. Because of that, many assume their absence from The Lord of the Rings means they refused to help defeat Sauron. However, that is far from the truth, as the Dwarven kingdoms were busy fighting one of the largest battles of the entire War of the Ring, leaving only Gimli to aid the race of Men. So, where were the Dwarves in The Lord of the Rings?
In The Fellowship of the Ring, Elrond tells Gandalf that the One Ring can't remain in Rivendell. Because the Elves are leaving into the West, Elrond asks, "Who will you look to when we've gone? The Dwarves? They hide in their mountains seeking riches, they care nothing for the troubles for others." However, while there's some merit to these words, they do a disservice to the Dwarves, who faced a battle of equal importance.
Erebor Was Part of the War of the Ring
After the Dwarves refused to cooperate with Sauron, he sent legions to attack the Dwarven kingdoms, including the great city of Erebor. The allies Sauron sent were the Easterlings, which held the largest army in the entire war. With more than 200,000 troops, the Easterlings completely overshadowed any army that stood against it. However, that didn't mean the Dwarves wouldn't put up a fight.
For the first three days, the battle was bloody and saw heavy casualties. The area that Bilbo had traveled during The Hobbit all those years before was left ruined. Lake-town and the neighboring city of Dale were overrun by Easterlings, and the kings of Dale and Erebor were slain, causing panic throughout the kingdom. That led both Men and Dwarves to flee into the Lonely Mountain and seal up the city. And while the situation seemed grim, the Dwarven stronghold proved almost impossible for the enemy to penetrate.
The Dwarves Claimed Victory - But the Enemy Remained
Dwarven stubbornness proved too much even for an army of 200,000. For the entirety of the War of the Ring -- the primary focus of The Lord of the Rings -- the Easterlings failed to break Erebor's defenses. Eventually, news spread about the fall of Sauron, and the army was forced to retreat to the East. However, it's said the Easterlings continued to be a problem well after Sauron passed from Middle-earth.
With Sauron sending his largest army to take on the Dwarves, he likely thought the battle would be over swiftly. But with Dwarves keeping the Easterlings distracted for the duration of the war, that meant they couldn't return to defend Mordor. That gave Aragorn enough confidence to distract Sauron at the Black Gate and allowed Frodo to enter Mount Doom undetected.