system
Given the following post, respond as if you're commenting on Reddit:
human
[LOTR] Were the hobbits created by Ilúvatar, or were they an offshoot of another race, similar to the orcs and elves? If they were children of Ilúvatar, why was Sauron unaware of them until Smeagol's first trip to Mordor?

When telling the story of the ring to Frodo, Gandalf says:

>'Yes, alas! through him the Enemy has learned that the One has been found again. He knows where Isildur fell. He knows where Gollum found his ring. He knows that it is a Great Ring, for it gave long life. He knows that it is not one of the Three, for they have never been lost, and they endure no evil. He knows that it is not one of the Seven, or the Nine, for they are accounted for. He knows that it is the One. And he has at last heard, I think, of hobbits and the Shire. 

which seems to imply that Sauron was not previously aware of hobbits. Wikipedia claims that they are an offshoot of men, citing this passage: 

> It is plain indeed that in spite of later estrangement Hobbits are relatives of ours: far nearer to us than Elves, or even than Dwarves. Of old they spoke the languages of Men, after their own fashion, and liked and disliked much the same things as Men did. But what exactly our relationship is can no longer be discovered. The beginning of Hobbits lies far back in the Elder Days that are now lost and forgotten. Only the Elves still preserve any records of that vanished time, and their traditions are concerned almost entirely with their own history, in which Men appear seldom 
and Hobbits are not mentioned at all. Yet it is clear that Hobbits had, in fact, lived quietly in Middle-earth for many long years before other folk became even aware of them. And the world being after all full of strange creatures beyond count, these little people seemed of very little importance. But in the days of Bilbo, and of Frodo his heir, they suddenly became, by no wish of their own, both important and renowned, and troubled the counsels of the Wise and the Great. 

but this is a pretty disappointing explanation considering how otherwise thorough Tolkien was in his worldmaking. They are nowhere mentioned in the Silmarillion that I recall, though I suppose that was intended to be written from the Elves' point of view. Was there a "sundering" of men and hobbits, like that of the Eldar and Avari?
gpt
Hobbits are a product of genetic drift in an isolated population of Men.  At some point a small group, perhaps three or four extended family clans, were separated from the rest of Arda somewhere around the Anduin River valley.  

One or more of the traits that distinguish hobbits as hobbits - short stature, large hairy feet, prolonged adolescence (aka neoteny) - appeared as random mutations within a family.  Due to the small population size, these traits became fixed, i.e. they were inherited by all individuals in the valley within a few generations.

Once this tribe of proto-hobbits became differentiated, their unusual features would be a deterrent for interbreeding with other groups of Men.  This would result in the fixation of further mutations, eventually resulting in the halfling races seen in the Third Age.