Hobbits are small creatures, smaller than dwarves, ranging from 2 to 4 ft. Unless of course, you are Bullroarer, Meriadoc Brandybuck, or Peregrin took. They have an abundence of curly hair that occupies both their heads and toes. They have rather large and furry feet which are as tough as leather, so they do not make or have the need for shoes. They have comely faces apt to laughter, and they enjoy feasting and parties and merriment.
No one knows for sure where the word "Hobbit" came from, but it may come from the word holbyta, and Elvish word for hole dwellers (inform me if I'm wrong.)
That is true, hobbits used to live in holes in the ground. Now only the very poor and very rich carry on that custom. The poor's are rather just like holes, but the rich have cavernous holes with many rooms. Some hobbit families, such as the Brandybucks, live all together in peace (most of the time) in large cavernous dwellings, where everyone lives together.