When Moradin cast off his chains and the Dwarves rebelled against the Giants, most of them moved permanently underground. Those who remained on the surface became known, over time, as Halflings.
Standing only 2-3 feet tall, Halflings are basically half-sized Dwarves without beards. There is a greater variety of complexion amongst Halflings than Dwarves, possibly owing to their lives above ground which have coloured their skin, hair and eyes in more shades than their uniformly dark cousins.
Furthermore, Halflings disdain footwear and go about barefoot most of the time. They are generally Neutral Good, friendly and helpful folk and they prefer living in shires built to their size rather than trying to fit in with Humans.
Halflings worship the Creator Gods who made the Giants. They opted to stay above ground where the constellations can be seen, rather than go underground and follow Moradin.