My own thinking is this: D&D and LOTR/Hobbit have gotten us used to the idea that dwarves are basically just short curmudgeonly humans. In fact, even in toleins creation myths, we see the dwarves are much more akin to elves: elemental sprits, created for a purpose, embodying the creative spark while being the epitome of certain elemental traits. Elves are grace and beauty, spirits of air and water; dwarves are endurance and persistence embodied in the earth.
Inspired by a variety of sources including Terry Pratchett and James Maliszewskiand and probably others who envision and presented a different mold for the dwarf.
Also known as Dwarves or Kobolds, Svartalfar are the descendents of earth spirits that have traded much of their power for the ability to remain free-willed and active on the material plane. Svartalfar are descended from kobolds –earth spirits able to move thru matter much as a fish does, but having very limited ability to influence or manipulate it.
Ages past, some Kobolds became so enamored of the gems and precious minerals of the earth, as well as the possibility of creation, that they became material themselves, albeit with some remnant of their elemental heritage. Svartalfar (or Svarts) are their descendents; and are material creatures, with most of the material world’s limits, but unusual rules and abilities. They have retained some of their ancestors’ resilience and endurance, and all, if not more, of their lust for wealth and craftsmanship. They are still attuned to the deep earth in wars that are mystical and amazing, and are always more comfortable living underground as did their forefathers.
Svarts are genderless, but reproduce when a group of Svarts enact a particular and secret ritual which brings forth a new adult Svart from the combination of their physical material, their wealth, and the surrounding earth. The Svarts in the ritual are physically diminished, and generally impoverished (more wealth equals less physical loss, but there is always some of both) so they increase their numbers very, very slowly.
They have a long lifespan, and are far more resilient to the slings and arrows of the material world than purely mundane inhabitants. They are also secretive, few in number and fiercely possessive. Their magical nature allows them to see in total darkness, intuit depth, find gems and raw metals by smell and taste and spot things hidden in and by stonework, and generally note slopes and changes in construction and the natural forms of the earth.
Their tools are primarily raw metal or stone, but when crafted by a Svart, exceed the quality of the most cunningly built or alloyed tools of mankind.
All non-magical physical attacks against Svarts do half damage and are at -2 difficulty; this does combine with any armor effects, although only Svarts that associate with the outside world will wear such. Magic, especially that of the Fey is dangerous to the Svartalfar, and such weapons and attacks take not difficulty, and do +1d6 damage.
Finally, all Svarts are under an unbreakable geas –they may never renege on a deal or an oath, nor forget vengeance for a slight. They may lie, fantasize, imagine, and whatever, but once they agree to a deal, swear an oath, or call for vengeance, the terms must be followed exactly and completely. . Note that a Svart cannot be released from these under any circumstances except completion. If the partner dies or the exchange becomes impossible, the Svart will continue trying to complete it, slowly going mad and becoming an undead spirit in constant torment. One must remember that Svart are neither stupid nor naive and they have developed many ways to interact with the world that do not call this geas into effect. For instance, elaborate contracts with escape clauses are insisted upon for the simplest deals, and, a vengeance oath may be simply to “see the person dead, if not by my hand “. Still, they can be tricked, fooled or mislead by their pride, strong emotions and tempers.
A less fantastic origin for the Svart is as a further evolved Homo Neanderthalensis, driven to live in desolate and underground realms by the faster breeding human races, and selecting for a reduced stature in addition to the typical stocky Neanderthal frame.