In the beginning of the story, Thorin tells the dwarves about how his ancestors were driven out to the north and then returned to the mountain. Once there, they grew rich and respected by kings and men. All their wealth however brought dragons to their country. Smaug, the dragon, came and destroyed their village, killed the dwarves and men, and took control of the mountain. Thorin’s father and grandfather escaped somehow and joined Thorin as they struggled to survive in strange lands.
Long ago, Thorin's grandfather was king of the dwarves under the mountain. They grew wealthy and respected from crafting beautiful items made from gold. This however drew unwanted attention.
A Dragon came from the north and set fire to the pines and burned down Thorin's grandfather's village.
All of the Dwarves tried to defend against the dragon they used their strength to try to defend against the Dragon, but it too, was big and strong.
There was a huge battle with the Dragon, but in the end the Dragon prevailed.
The Dragon killed almost all the Dwarves, however, Thorin's father and grandfather escaped through a side tunnel.
They later met up with Thorin and tried to make a living with him. Sometimes sinking as low as blacksmith-workers and coal miners.