The authors of Draw Steel! had to call these creatures "Polders". I believe this was for copyright reasons. I dispense with that pretense where I can and you can substitute Polder with Halfling whenever you see it in the rulebook.
When did the halflings come to be? Even the oldest Elves attest they seem to have always been here. Whenever they found their way to Initia, these short folk are essential members of Western life. Sharing human religion and natural disposition against magic the halflings are the only non-Human races that gains full purchase socially and politically in the Dominion. They have a propensity for city life where they are renown for their role as brewers and chefs.
Outside of normal life one may find the unique halfling mercenary where they are highly sought after for spying and thievery. They make master spies because they posses the ability to meld with shadow becoming invisible, this in addition to their natural ability to be looked over in the literal sense. They are highly desired thieves for those same reasons in addition to being able to get into small places. City dwelling halflings may take a swing at anyone repeating the claim that they are ne'er-do-wells... if they can find a stool to stand on. They are only 3½ feet tall on average.