Svartalfheim is a realm beneath the earth. The Eddas tell us in the Creation Myth that after the slaying of Ymir, Odin and his brothers reassembled the dead Giant and created a new Universe from its corpse. From the blood they made the sea, stones from its teeth, clouds from the brains, the sky from the skull and its flesh became the earth. Soon after maggots came alive in Ymir’s flesh and the Gods gave them consciousness and human shape and these beings were the Svartalfar or Dvergar. So like when they create the Universe as well as us humans (Völuspa 17-18, Gylfaginning 9), the creation doesn’t happen ex nihilo but something that is already there is transformed and brought to a higher level of consciousness and agency. This is a fascinating aspect of Norse Mythology and has many interesting philosophical implications. Fact is, that the realm of the dwarves is to be found underground, in the earth, in stones and rock formations.
There is not much more that the sources tell us about the realm of the dwarves but we know quite a bit about them as they show up in many of the Myths. As with the Giants there is no indication in the sources that the Svartalfar were thought to be small of stature, this is an attribute that shows up later on when these Myths start to reappear as fairy tales. What they do have in common with their later fairytale adaptions is their skill as blacksmiths. They are by far the most talented metal workers and goldsmiths in all the 9 worlds. Some of the most famous artifacts owned by the Gods were actually fashioned by the dwarves like Odin’s spear Gungnir and Thor’s mighty hammer Mjölnir (Skaldskaparmal 43) or Freya’s famous necklace Brisingamen (Sörla Þáttur).
An interesting aspect about the dwarves is that at least some of them were thought to be shapeshifters. We hear about the dwarf Andvari (Reginsmal, Skaldskaparmal 46) who lives in a pond beneath a waterfall and hoards a lot of gold in a nearby cave. When he’s in the water he appears in the shape of a pike. The same story talks about another dwarf named Otr that likes to spend his time in a pond as well, hunting for fish in the form of an otter. Another hint can be found in the story of the master smith Völundur who is captured by a human king, incarcerated and forced to produce precious items. After taking gruesome revenge on the king and his family he escaped by flying away. While it isn’t said explicitly how he was able to do that it is likely that he did so by shapeshifting into some kind of bird.
There are several stories that portray the Svartalfar as being rather unpleasant fellows. Two dwarves called Fjalar and Gjallar invited Kvasir, the most wise and knowledgeable being, to their home (Skaldskaparmal 5). But since they wanted permanent access to his immense knowledge they killed him, collected his blood and mixed it with honey, thereby creating the mead of poetry which is the source of all knowledge and inspiration in all the 9 worlds. Later on, they invited a Giant whom they killed for no apparent reason by using trickery and then disposed of his grieving wife as her weeping annoys them. Regin and Völundur (Reginsmal, Völundarkviða) are equally unpleasant fellows and if we look at the different dwarf-names that are found in the Eddas and Sagas there are quite a few that confirm that impression. To label them as evil would be very short sighted though as they are also the creators of Thor’s hammer which he uses to protect Midgard and Asgard from incursions of hostile Giants or Gleipnir (Gylfaginning 34) the fetter used to bind the wolf Fenrir until Ragnarök when he will kill Odin.