Of the many races and stories within Tolkien's Legendarium, the Dwarves are arguably the ones who take a bit of a backseat in the narrative of The Lord of the Rings. The time of the Elves is coming to an end, and their departure from Middle-earth is critical to the ensuing struggle between Men and Orcs to find the premier successor once they have gone. Hobbits remain an extraordinary part of the story, but Dwarves (outside of Gimli) take a backseat in the descriptions of the War of the Ring. They fought bravely at the Battle of Dale and other critical skirmishes in the North, but they remain the least described throughout the three books. In the author's broader writings, though, the Dwarves have a long and storied history starting far before their starring role in The Hobbit.
In the extended works of Tolkien and the collated writings published after his death, the author goes into significant detail on how the major races of Middle-earth came into being. Elves and Men were created by the god of Tolkien's universe, Eru Ilúvatar, while Orcs were created from the earth itself by the most significant evil force the world of Arda had ever seen, Morgoth. Dwarves are an outlier with arguably a more exciting origin that pulls on the nature of the relationship between Eru and his Valar and the essence of what makes a being a living thing.
The Dwarves Were Created by One of the Valar
The Valar are a race of angelic-like beings tasked with caring for the world of Arda. Aulë the Smith was one of the great Valar and the third most powerful of his kind, after the brothers Manwë and Melkor. He delighted in fabulous creations and is responsible for forming the mountains and minerals of Middle-earth. He was fiercely loyal to Eru and waited patiently for the arrival of his children (Elves and Men), but when he grew tired of this, he decided to take matters into his own very capable hands.
He set about creating his own race of beings deep underneath one of his immense mountains. He made seven beings known as the Fathers of the Dwarves from whom all the Dwarves that play such a prominent part in the Third Age are descended. Eru finds out about this and quickly scolds Aulë, who decides to turn over his creation as a form of penance. Eru was going to destroy them, but in a show of mercy, he instead used his unique power to grant them life and mark them as his "adopted" children. He was unwilling to let them be the first beings to walk Middle-earth after the Valar and Maiar, having decided that he wanted this honor to go to the Elves. To solve this, he puts the Dwarves to sleep until the Elves awaken.
The Dwarves Became Hugely Significant to the History of Middle-earth
The seven Dwarves were scattered across Middle-earth. Once they awoke, they formed clans and moved from their original resting places. The most important of these are the Longbeards from Gundabad. Also known as Durin's folk, their line continues down through the ages and includes hugely significant figures like Thorin Oakenshield, Balin and Gimli. The Ironfists, Stiffbeards, Blacklocks and Stonefoots awoke somewhere in the East, while the Firebeards and Broadbeams originated in the Blue Mountains.
Despite their unconventional start in life, the Dwarves become one of the most significant races in all of Middle-earth. Their prowess in the areas coveted by their creator Aulë was apparent for all to see as they accumulated unmatched wealth wherever they decided to settle. Though they are known for being stubborn and difficult to win over, they are fierce allies and incredibly tough warriors who retain much of their creator's designs, even so long after their birth.