Tolkien inspired D&D, which was subverted by Warhammer, which was ripped off by Warcraft. And World of Warcraft took over the world.Yes, that is what I am asking. Were does the modern (20th century+) version of dwarves come from? Or was it a fabrication from many didn't myths, legends, and folklore?
Tolkien inspired D&D, which partially inspired Final Fantasy*, the second JRPG (after Dragon Quest/Dragon Warriors)
Tolkien inspired D&D, which inspired Ultima and Wizardry, probably the two root games of Western CRPGs.
So where they came from? It all boils down to Tolkien and D&D I'm afraid.
* In Final Fantasy 1 dwarves literally lived in Mount Duergar.