Where do hobbits come from?

I've just finished The Silmarillion, and i know that elves and men were made by Eru, and that the dwarves were made by Aule(? i kinda forgot, i dont have the book on hand) who created the hobbits, they're not beasts/animals, so.. they must have been created by eru, or some valar, but no, theyre just there in 'of the third age and the rings of power'. Anyone care to tell me, I'm utterly confused...