It's interesting to note that the original editor for Lord of the Rings actually "corrected" Tolkien's spelling of "dwarves" to "dwarfs." Tolkien stated that the true plural of dwarf is dwarrows, yet he never actually used that version except in the word "Dwarrowdelf", another term for Moria. He even called his version of the plural his own piece of "private bad grammar". No matter how the term originated or evolved, the fact is that in almost all uses of the word in a fantasy setting now (with the exception of Warhammer and a few others), dwarves is correct.Dwarven History
The Dwarves were said to have awoken just after the Elves, at the start of the First Age, before the Sun or the Moon. The Vala Aulë created the Seven Father of the Dwarves in secret from the other Valar, originally. When it was decided that this creation was not evil, they were allowed to awake only after the Elves. Aulë sealed each of these Dwarven patriarchs in stone chambers throughout the furthest reaches of Middle-earth.
Durin, the most infamous and eldest of the original Seven Fathers wandered the eastern side of the Misty Mountains after he awoke, only to discover Khazad-dûm. The following generations of his people were known as the Longbeards, and they prospered in the underground caves.
Far to the west in Ered Luin, the cities of Belegost and Mogrod were founded by the Firebeards (Nogrod) and the Broadbeams (Belegost). This was the land of the Blue Mountains. The remaining four houses were Ironfists, Stiffbeards, Blacklocks and Stonefoots. Tolkien didn't detail these lineages quiet as much as the first three, as most Dwarves pertaining to the story of The Ring were descendants of Durin and the Longbeard clan.
There were also the Petty-dwarves, which were exiles from various houses who formed together in Ered Luin's Beleriand, before the creation of Belegost of Nogrod. It was during this time that the Sindar first made contact with Dwarves and saw them as nothing more than "bothersome animals". Through these hard times with the Elves, and a continued history of being notoriously anti-social, the Petty-dwarves eventually became extinct.
The discovery of mithril in Khazad-dûm led to great wealth and respect for the Dwarves during the Second Age. Once the Rings of Power were forged and given to the seven kings of the Dwarven clans, they joined the Elves in their battle against Sauron.
During the Third Age, when Dwarven miners unearthed the mighty Balrog, henceforth known as Durin's Bane, the ensuing destruction crippled the once-mighty kingdom and drove the Dwarves from their native homeland. Of course you can read much more about this in a previous Know Your LotRO Lore concerning the origins of Moria.
The refugees from Khazad-dûm eventually settled across the lands, from the Grey Mountains to the Lonely Mountains, where the great Iron Hills kingdom was established. During the War of the Dwarves and the Orcs after the death of King Thrór, it is said that more than 35% of the entire population of Dwarves was killed.
Exile was soon found again as the Dwarves wandered back to the Blue Mountains. This didn't last long for the majority of Dwarves though, as Thorin II Oakenshield set out to recolonize the Lonely Mountain after Smaug the dragon was slain by Bard. After Gimli joined the Fellowship of the Ring and did his part to save Middle-earth, he settled and ruled the Dwarven kingdom in the Glittering Caves, near Rohan. When Aragorn died in year 120 of the Fourth Age, Gimli set out with Legolas to the Undying Lands. The fate of the Dwarves from that point was not detailed any further by Tolkien.
