The Elder Scrolls Lore

The Dwemer

"A race of stonecutters, artisans, and engineers. They invented machines and built elaborate underground cities where they researched powers to rival the gods themselves." — Calcelmo

History of the Dwemer
Only the bravest of adventurers go delving into Dwemer ruins. Thousands of miles of mazed tunnels filled with steel machines and traps make these ruins the most dangerous of places. Yet the mystery isn't about how deep they go or how wide they run, it's about who put them there.
The Dwemer, also known as Dwarves, or Deep Elves, used to live in the those ruins long ago. They were a race of overwhelming intellect, advanced in their technological feats, extremely good architects, blacksmiths, and miners, but were also known to be cruel and devastatingly cunning. They are said to have grey or tan skin, dark hair, and amber eyes. They would decorate themselves in fancy metal armor and braid gold rings into their hair.
As odd as they sound, the biggest mystery about them is what had happened to them. Centuries ago, the Dwemer started their work and built great underground cities; mining deeper than anyone would dare go, inventing things the other races would never think to invent, and learning of powers and potions the other races would not discover for years to come. Yet their biggest goal was to recreate the divine power of immortality.
The Dwemer were fascinated with the idea of making themselves like gods, and so they set out to find a way to become as powerful as the deities they worshipped. While on this hunt, they found Lorkhan's heart while mining under the Red Mountain. Lorkhan, (also known as Sithis, Padomay, Lorkhaj, or Shezarr) was the god who helped create Mundus, but at the expense of the other gods and goddesses. As punishment for his trickery, his heart was taken from him and thrown into the sea. However, his heart was so powerful it grew a mountain around it; the Red Mountain.
     Also around this time, the Snow Elves came to the Dwemer for help; they faced extinction from the Nords. The Dwemer promised that they would shelter them from the Nord menace if they would eat a fungus which would take away their sight. Eventually the Snow Elves agreed to the terms, but the Dwemer only used them for slaves. Once blinded, the Dwemer tortured them, put them to hard labor in the mines, and eventually caused them to devolution into what is now the Falmer.
     The Dwemer continued to research Lorkhan's heart upon finding it, trying their best to harness its power. Three tools were constructed to help the Dwarven architects tap into the Heart of Lorkhan; Keening, Sunder, and Wraithguard. Using them, they tried to control the Heart, or at least understand how it's magic worked. When the Chimer, now known as the Dark Elves, caught wind of what the Dwemer were doing, they declared war. The Chimer believed that the Heart should've been left alone, and to mess with it would anger the gods.
     The war raged on, for no telling how long, until one day the unthinkable happened. The entire Dwemer race vanished. What happened? No one knows. Some say the Chimer defeated them and wiped them off the face of Nirn, some say the gods banished them to nothingness for trying to use Lorkhan's heart, and some believe the Dwemer achieved immortality and are now somewhere in Aetherius enjoying their godly gifts.
     Regardless of what happened, the Dwarves are gone. Not a single one has been found in the world for centuries. The only reminder of them is the great brass cities they left in the ground. After years and years, the ruins still stand; holding secrets and riches untold. Maybe one day someone will tread deep into the ruins and uncover the truth. Until that day comes, if it ever comes, people will continue to ponder the possibilities and tell the stories of the lost race.

Dwemer Artifacts
The Dwemer were as inventive as they were mysterious. They created so many technological feats; some boast that they were a race ahead of its time. Many curious explorers go down into the Dwemer ruins in search of their artifacts.
One of their most well known inventions was the warrior machines, which were metal automatons able to fight enemies on their own, and very well. They are referred to as Animunculi. The common types of Animunculi are called Dwarven Centurion, Dwarven Sphere, Dwarven Spider, Dwarven Sentry, and Centurion Archer. Each have their own make and own way of defending the ruins they roam in. That's why most Dwemer ruins are very dangerous; these Animunculi still guard them and are very hard to defeat. The metal warriors were powered by dynamo cores and soul gems, sustaining them to operate with little maintenance even to this day.
However, the Dwarven Centurions and Spiders were nothing compared to the (almost) biggest Animunculi accomplishment the Dwemer had planned. When finding the Heart of Lorkhan, their plan was to make a gigantic metal beast and power it with the Heart. Therefore, creating an artificial god. There are endless possibilities of what the Dwemer would do with such power; crush all their foes, conquer all of Tamriel, and even war with the gods themselves.
This great monster of a machine was known to be called Numidium, also named the Brass God, or the Brass Tower. Numidium was constructed, but whether it was ever used is still a mystery. Especially since the Dwemer disappeared not long after trying to contain Lorkhan's Heart. Numidium is stated in several prophecies, saying that it "walked", so the Dwarves could have succeeded in powering it with the Heart. In truth, no one knows for sure.
Between the Brass God, the Animunculi, the great metal cities, torcher chambers and temples, it's no doubt the Dwemer were excellent at their craftsmanship. As good as they were, though, it could have been their undoing. In the eagerness to make themselves as gods, they succeeded in many feats, but as for if they succeeded in their overall goal, one can only wonder.

Katria's Journal
It appears someone went searching for answers. In her journal, Katria goes looking for secrets when a colleague of hers steals credit for her previous work.
"4th of Last Seed. I've got a lead. One of the moldy old books in Mzund mentioned the Forge. Ruined through and through, but I was able to copy down a few scraps, including a map of the first-era Dwemer kingdoms. Need to cross-reference it with modern borders when I get back," the journal states.

Conclusion
An intelligent people, power-hungry people, cruel people, wise people, naive people; whichever one they were, it's no secret that they accomplished much. Eventually, all persons of the race disappeared without a trace, leaving the rest of the world to wonder what happened to them.
Now, they are a mysterious tale told in taverns and raved about in libraries. Scholars search for answers, but have yet to find any. Someday we might find out what happened to them, but odds are we may never know.

Official Elder Scrolls Lore