Hobbits, also known as halflings, are a race in Middle-earth. While their exact origin is unknown, they first appeared in the north of Middle-earth. At the start of the Third Age they moved north and west, until they eventually founded the land of the Shire.
Historically, the Hobbits are known to have originated in the Valley of Anduin, between Mirkwood and the Misty Mountains. There are three 'breeds' of Hobbits, with different physical characteristics and temperaments: Harfoots, Stoors and Fallohides. While situated in the valley of the Anduin River, the hobbits lived close by Eotheod, the ancestors of the Rohirrim, and this led to some contact between the two.
As a result many old words and names in "hobbitish" are derivatives of words in Rohirric. The Harfoots, the most numerous, were shorter and stockier and had affinity for water, boats and swimming. They lived on the marshy fields Gladden Fields where Gladden River met the Anduin. It was from these hobbits that Deagol and Sméagol (also known as 'Gollum') were descended.
The Fhallohides, the least numerous, were the most adventurous hobbits that preferred to live in the woods under the Misty Mountains. They were said to be taller and fairer than the other Hobbits (all of these traits were much rarer in later days, and it has been implied that the wealthy, eccentric families that tended to lead other hobbits politically, like the Tooks and Brandybucks, were of Fallohide Descent).
One of the most notable families of hobbits are The Baggins, as two members of this family (Bilbo Baggins and Frodo Baggins) play a big part in both The Hobbit and The Lord of the Rings. Bilbo is the one who finds and holds on to the One Ring and Frodo Baggins is one of the nine members of The Fellowship and the person who takes the Ring up to Mount Doom, destroying it once and for all.