Proud Dwarves lived in a kingdom within a solitary mountain which they named Erebor, led by an aged Dwarven King who is the patriarch of all dwarves of Middle Earth, and who possesses a Ring of Power to help him rule. They trade with a city of men at the mountain's foot named Dale and by the river to all other lands. A river poured from the mountain called the River Running, which filled the Long Lake, then ran off across the countryside. A massive red dragon named Smaug just flew down from the north, outmatching all the might of the realm. He quickly routed all the dwarves, claimed their halls as his own, destroyed the city of Dale, and stole their maidens for his dinner. These refugees, both dwarves and men, are fleeing and you are among them. Feelings of anger and loss are prevalent and as-yet undealt with.
Where you are, you live in fear of being eaten by the dragon daily. Along all routes eastward are wild, untamed grasslands where hordes of nomadic marauders known as Easterlings will ride you down, enslave you, or kill you. To the west is the Mirkwood - home of the Necromancer and horrible creatures attracted to his evil, but some brave souls still make homes at the dark forest's edges. At the north end of the Mirkwood is the Kingdom of Elves who has retreated steadily under the evil's advance, allowing the forest to sink into its evil state. With the dragon's arrival the elves seem poised to become even more insular, more sealed off from you and the world. The dwarven road that once went through that great forest has fallen into danger and disuse as evil beings began to prey upon it. Beyond the forest along that road are the Misty Mountains -- massive, nigh unpassable, and filled with warring giants -- where the ancient dwarven kingdom of Moria lies beneath lost to an unstoppable demon known among dwarves as Durin's Bane and overrun by the orcs which worship it. To the north are the Grey Mountains, a forbidding and cold place separating this land from the Dragon's Heath where all dragons are born. The dwarves fled from there 200 years ago when White Dragons slew the previous Dwarven King and they lost a ten-year war. Nobody knows what remains there. To the Northeast are the Iron Hills, where the King's youngest brother settled other dwarves after their father got eaten by the snow-dragon.
While the dwarves are all unified, descended in this land from their Patriarch Durin as the Longbeard Clan, the races of men are widely varied. Throughout this land are the Northmen: blond, strong, and fiercely independent, they take pride since the dawn of time for never having bowed to elves, dwarves, or other races. Their greatest hero, Fram, slew the dragon Scatha hundreds of years ago single-handed and used it to insult the dwarves - a slight they remain slow to forgive. Northmen live in small hamlets or individual family dwellings, making their own lives in farms, fields, and as horsemen. There are only two notable cities of Men in this region - Dale and Framsburg. Dale was a center of trade on the River Running, the only democratic society in the entire world, with an elected leader risen from among the influential merchants. It just got eaten by the dragon. Framsburg lies northwest, beyond the elves of the forest and at the foothills of the Grey Mountains. It was built several centuries ago using the wealth recovered from the dragon Scatha's hoard (to the anger of dwarves, who's treasure it was before the dragon took it). The unsettled folk of the land really just don't like to organize or bind themselves into great societies, cities, or feudal constructs. Combine that with the Long Winters of 12 and 13 years ago, and much of the region is broad, unpopulated, and inhabited by the unknown.
To the south is a lot of wild dangerous "brown lands," then the kingdom of Rohan, and beyond it, the kingdom of Gondor. It is there that you find great cities, feudal kingdoms, and ancient lore and knowledge. It is perhaps four or five times further to reach Rohan than going north to the Grey Mountains. It also bears telling a little of the story of the Race of Men. At the beginning of man's tale of this world, a race of dark-haired, grey-eyed men sought the wisdom of the elves, desiring the wisdom of the previous ages - these men became known as the Dunedain. One of their line married an elf and had two children, who who chose to be an elf and became Elrond (a powerful leader of the elven realms) and the other chose to be mortal man and founded the Line of Kings. These kings, wise and living longer than other men (~100-200 years) created great feudal kingdoms of Gondor (to the south) and Arnor (on the other side of the Misty Mountains) that lasted thousands of years. The northmen, who valued independence over all else and rejected the elves offer to trade knowledge for subservience, call the Dunedain "kneelers." Almost two thousand years ago (when the great evil Sauron was destroyed and the Second Age became the Third Age), Arnor fell, but Gondor still exists. In the time since, with no great evil to fight, wars got a bit more petty. The King of Gondor married beautiful blond woman from the northmen, and people got racist, saying he diluted the bloodline. Gondor had a big civil war that weakened it and which the losing side (the racist ones) never got over. A few generations later they struck again, bringing their allies. Gondor called to the Northmen for aid, and the call was answered, again winning the day. Gondor gave the northern part of their kingdom (which they didn't have enough population to fill anymore anyway) and gave it to the Northmen, naming it Rohan and naming their leader to be a King. Many northern families moved south and stayed to populate Rohan (at least, those that didn't mind kneeling to a King as long as he was a blond northman like them), where they still got to fight Easterlings to their hearts content and be great horsemen, but where they didn't have to fight as many dragons or the growing darkness of Mirkwood.
The era of time we are in is a footnote, meant to provide the backdrop for the story of the Hobbit, when the dwarves come back and successfully face Smaug to reclaim the mountain halls in roughly 170 years. In between, the dwarves try to reclaim Moria, but that won't happen for another 30 years. It stands to reason that the refugees did many things in the years of Smaug's coming... just that they weren't grand tales, were lost, or failed.

We are free to populate this time period however we wish to, as we'll never live long enough to encounter the things Tolkien actually DID write about.
Some general Tolkien background below, to provide context to the setting.
It is the year 2770 of the Third Age.
Current Events:
This Year - Smaug, a Fire-Drake, descended on the Dwarven Halls, driving out the dwarves and taking the halls and all their treasures as his own. After the attack the dragon would crawl out of the Front Gate of the Mountain by night and carry away people (especially maidens) from Dale to eat. The remaining population soon fled and the deserted city fell into ruins.
Key Personages:
Thror, King Under the Mountain, escaped during Smaug's attack. He had fled the Cold-Drakes 181 years ago, abandoning the Grey Mountains and moving the Kingdom back to the Loney Mountain and now lost the Lonely Mountain to a Fire-Drake. In the Grey Mountains, his father and younger brother were killed by the Cold-Drake, his youngest brother and he split the dwarven host, with his brother deciding to found the dwarf halls in the Iron Hills. As the Dwarven King, he is the bearer of the only Dwarven Ring of Power in this part of the world (two Dwarven Kings destroyed in the north at the end of the First Age, the other four being to the East beyond Middle-Earth).
His son, Thrain II, is 126 years old and Thorin II (later known as Thorin Oakenshield) is a child of 24 years -- they escaped with King Thror from the dragon's wrath by use of secret routes.
Girion, the last Lord of Dale, was slain by Smaug as the city was abandoned. His wife and child escaped dwn the River Running.
Thranduil is the elf king ruling in Northern Mirkwood. He was born in the First Age. Early in the Second Age he became King of the Woodland Realm (following his father's death in the war to destroy Sauron). The Greenwood as-yet untainted by darkness. When the Necromancer (Sauron in disguise) arrived at the southern end of the forest, it began corrupting into Mirkwood. He had to withdraw the elves from Amon Lanc the southern wood, establishing their home on a small mountain range in the middle of the forest from north-to-south (Emyn Duir). He was then forced to pull back further, eventually settling in the far-north forest (north of the Forest River) with a relatively small area under elven control. With the arrival of Smaug, his folk appear to be getting even more reclusive.
Geography:
The River Running was a 600-Númenórean miles long river that poured out of the Front Gate of the Lonely Mountain, descended over two falls and swirled around Dale. It turned west beyond Ravenhill and then east and south to Long Lake and thence through the eastern outskirts of Mirkwood, then south east through apparently uninhabited regions of Rhovanion to its confluence with the Carnen and finally in a long south-eastward loop to the great inland Sea of Rhûn, past the land of Dorwinion.
Recent history:
11 years ago - In the kingdom of Rohan to the south, Saruman settled in Isengard. Fréaláf Hildeson became King following the death of his uncle in battle against the Dunlendings. Taking advantage of the second Long Winter, the Dunlendings and Easterlings invaded with the support of the Corsairs of Umbar and laid siege to Hornburg all winter.
11-12 years ago - Known as the "Long Winter," storms and snows blanketed the entire northland, creating great hunger and death throughout all who lived in the north. Many populations shrank across the North.
1-180 years ago - Flourishing of Dale. Dale was situated in the valley between the southwestern and southeastern arms of the Lonely Mountain, nestled in a sharp U-shaped bend of the River Running. It was known as a merry town of Men that traded, mainly in food-supplies, for the skills and craft-pieces of the Dwarves. Dale's toy market was the wonder of the North and the town was renowned for its bells.
180 years ago - After the War of Dwarves and Dragons, King Thror leads the dwarves from the Grey Mountains back to the Lonely Mountain, re-establishing it as the capital of Durin's folk. His younger brother Gror led others to the Iron Hills. Most of Durin's folk abandoned the Grey Mountains.
181 years ago - a Cold-Drake killed King Dain I and his son Fror.
200 years ago - Dragons reappear in the far north, coming into conflict with the dwarves.
261 years ago - Gondor sent word to the Eotheod for aid, granting them land to found the Kingdom of Rohan as a reward, moving many Northmen south to that land.
560 years ago - Thorin I abandoned the Lonely Mountain, moving the dwarven kingdom away from Erebor/Dale and to the Grey Mountains to the north.
700 years ago - Scatha the Wyrm, possessed of a great horde stolen from the Dwarves, is slain by Fram son of Frumgar of the Eotheod, a proud race of northern men. They refused the dwarves' request to return the horde, creating grudges to last centuries.
Between the time when Thráin I founded the dwarf-kingdom in the Lonely Mountain (in 1999) and the arrival of Smaug (in 2770) the Northmen living between the River Running (Celduin) and Carnen grew strong and repelled all eastern enemies.
790 years ago - Thrain I leads dwarves to the Lonely Mountain, establishing the halls there.
791 years ago - The Balrog is awoken in Moria and slays King Durin VI and his son Nain I. After the dwarves left it was eventually populated by orcs from the north who began to worship the Balrog as their diety.
1331 years ago - The Great Plague killed more than half of the population of these lands, those remaining driven west of the River Running by the marauding Wainriders to the east.
Moria ("The Black Pit") was once known as Khazad-dûm in dwarvish and was carved by Durin the Deathless in the First Age. In the Second Age, it became possible to pass from East to West through its halls, passing completely under the mountain range.