Gimli sets us straight on the whole "how are baby Middle-earth dwarves made?" question:
GIMLI: It's true; you don't see many dwarf women. And in fact, they are so alike in voice and appearance, that they're often mistaken for dwarf men. This, in turn, has given rise to the belief that there are no dwarf women, and that dwarves just spring out of holes in the ground—which is, of course, ridiculous.
While it's easy to dismiss this as a funny line meant to relieve some of the stress and sadness of this long epic, we can't but think about how plausible it seems.
Think about it. What do you know about Middle-earth dwarf reproduction? Have you ever seen Middle-earth dwarf women? What if Gimli explained to Éowyn and Aragorn that, indeed, dwarves are a unisexual species and that their offspring spawn from the mines they dig? You would believe him, wouldn't you… and why not?
Thinking about this joke opens many questions about the supernatural in LotR. It's a world of magic and fantasy and other things our mortal minds do not understand. Who are we to assume that dwarves do or do not come from the very stone of Middle-earth? It sounds ridiculous when we know it's not true, but pitted against a backdrop of walking, talking trees, giant demons of fire, and almighty rings of power, it hardly seems implausible. As we enter the world of LotR, we allow ourselves to believe the unbelievable… and dwarven reproduction probably isn't an exception.