The Dwarf is a valley resident who lives in The Mines. Initially the way is blocked off by an unbreakable rock, just inside the entrance. After upgrading to a steel pickaxe the stone can be broken. A cherry bomb also works.
The Dwarf will start out speaking Dwarvish, which is unreadable by the player. In order to understand Dwarf you must acquire the 4 Dwarvish scrolls from within the mines. After donating them to the museum, Gunther will give you a Dwarvish Translation Guide to use which allows you to understand the Dwarf's speech. You cannot make purchases from the Dwarf's shop or affect friendship with the Dwarf until you understand Dwarvish.

The Dwarf is apparently one of a race of Dwarves. They were once powerful and advanced but now only relics remain as artifacts. Krobus describes a 1000-year war between the dwarves and the shadow people, as such Dwarf is sometimes suspicious of the player of being a spy sent by the shadow people.

Source - Stardew Valley Wiki