No Magic
Dwarven magic is the magic of things. They cast no spells. They work objects with tools, enhancing and transforming the object. Anything like spellcasting they call sorcery and condemn it outright as wicked work, at least for dwarves to practice. In this respect, they are similar to gnomes. As far as dwarves are concerned, they do not do magic, they do craft.
Often called craft magic, what dwarves do has at times been considered not magical at all but merely incredibly advanced skill. This is incorrect. Gnomes are master craftsmen, but that’s all. Dwarves go beyond this. According to modern scholarship, dwarves arrived in Europa with an array of items heavily infused with phlogiston. Over the centuries, the phlogiston became dispersed, as per the Third Law of Phlogistics.
No nation has ever possessed the dwarvish ability to manipulate magical objects, drawing their full potential and even adding to it. How they do this is still not fully understood, for dwarves guard their processes closely, but it appears to be a combination of learning, innate skill, and their specialized tools (which themselves are magically crafted).
Craft
Dwarves make plenty of perfectly ordinary objects, of course. That, indeed, forms the bulk of their work. Their unique specialty, however, is the making of crafted objects. This requires four aspects: a specific sort of forge, specialized tools, a master craftsman (kunzler), and one or more magical elements.
A kunzler always made his own tools; or, rather, used the tools bequeathed to him by his master. If a master had more than one knecht (similar to an apprentice), he divided the tools, leaving it to the student to craft anything additional needed. Tool sets were thus both traditional and individual, and were ever-evolving. These variables alone make it difficult to tell exactly what went into the crafting of any one particular magic sword, staff, wand, etc.
The forge was something well beyond personal; it approached the sacred. Its existence was a complicated algebra of location, craftsman, material, and even construction. While in theory any item can be made in any dwarf forge, in practice certain forges have acquired a reputation for specializing in certain kinds of objects—the Forge of Aneto of the Pyrenean Canton, for example, is famous for its swords.
The knowledge of the kunzlerei has always been closely guarded. Those secrets are kept within the shop, surrounded by clan, surrounded by canton, so that non-dwarves have no hope of penetrating to the inner circles. The knowledge has never been written down.
The magical elements, which form the final aspect, are most commonly infused gems. No one understands how, but a kunzler can distinguish an infused gem from a merely beautiful one. Powders, elixers, extracts, essences, and even vapors have also been used—we know this from reports by individuals who have requested the construction of magical items.
A fifth aspect should probably also be added: money. Dwarf-craft is never cheap, and an object kunzler-made is even dearer. Most of what comes out of dwarf forges is made for other dwarves, not for the outside world.
Tradition
There are many legends about ancient dwarven wrights, but little historical record until the end of the Second Dark Age.
Dwarves had an elaborate system of apprenticeship by which old knowledge was preserved while leaving room for innovation. The wright always had to show his sources, but could invent.
They therefore have no academies. Dwarves learn magic through their guilds and the system of apprenticeship. In addition, every clan has its heirlooms, which are magically infused objects. All dwarven magic is strictly internal; outsiders are never given a glimpse. Even when they get a glimpse, they can do little with it, since the only real way to proceed is to go through the long apprenticeship, which of course will never happen.
Dwarves are all about preservation. Therefore, there is more change than development, and over the centuries we can see a gradual decline, though ossification might be the better word. Everything must be done the way everything has always been done. A family might take pride in having an object that has not even been used in generations.
Craft and the World
Dwarves distinguish between darkness, which lies under stone, and shadow which lies under light. Black is merely a color, not a quality like dark and shadow.
Hell is a place of shadow, neither light nor dark, cold and motionless. Those in Hell stand mute, motionless, mutilated. They can never know warmth. Forever apart from the spirits of the world.
Gem and stone lore runs deep with dwarves. Where a human might speak of a ruby or basalt, the dwarf will know from which mountain range, and even from which mine, a particular stone originated, where it was transported, how it was shaped. Every stone has a history, a dwarf will say. Thus, when a dwarf lives in a mountain canton, he is surrounded by history, as thick as beef soup. A dwarf in a human city lives in an alien land. And dwarves hate and fear the sea, for it is bereft of stone. No craft can be done there at all.