I will give 3 answers per post.
Are there Halflings?
Yes and No. I obviously take some ideas and influences from other fantasy universe's, but I dislike copying anyone outright. Seeing as "Hobbits" were created by Tolkien, and D&D used their nickname "Halflings" given by the men of Numenor to put them into D&D, I didn't want to make my Halflings a 3rd generation clone. So I have what you might call "Burrowfolk" or "Burrahobs." They're around 36 to 40 inches in height, though they have a strange ability that lets them grow up to 5 feet in height for small lengths of time. They have cheeks that can store great amounts of food that they'll nom on at anytime during the day. They're master farmers and diggers of earth, with slightly pointed ears and generally they're very merry, though they can be prone to mischief or jealousy.
How was the universe created? Gods, random chance, etc?
My universe is sort of a mixture between Warhammer Fantasy, Forgotten Realms, and historical myth. However, a lot of my world buidling aspects are very Tolkien-esque. I sort of wanted to bridge a gap between our world and this one, and so while it is not necessarily canon, I sort of began by thinking "How would a world look after Dagor Dagorath, which was essentially the "End Times" of Tolkien, where the final battle against evil is fought and at the end of days the world would be remade. I wondered what world that would look like, and since Middle Earth/Arda is a pre-history of our world according to Tolkien, you can think of this as being after the next
Big Crunch of our universe where it collapses into itself before creating another Big Bang to restart the process.
The universe is made up of 3 main realities. The reality of this new universe is known as Mannaheimm or Stridheim to some (just made up those 2 names, woo), though it has no true name. It was willed into existence by the one known as the Evergod, who's very spark of creation made the other 2 as well. The Elves like to say that the Evergod created a great 'Ring of Creation' sort of like the Black Hole theorized at the center of galaxies and universes. The other 2 realities are the Great Nothing/Void of Endless Beyonds, and the Perilous/Other Realm, where many 'lesser realms' are connected and intermingle. For example, the Elves come from an unknown Fey realm, before they were taken in by the Gods and went to their realm, where they were cast out into our plane/planet. Some of them tried to remain in the Perilous realm and conquered another realm, calling it the Ele'domhan before it was sundered and the rest were forced to come onto the planet.
The Gods are very much more akin to Arch-Angels. They are known as the Luminar. Below them (though some can rival them in power) are the Valukar, which consist of Physical Gods, Luminar in Avatar states, Greater Demons, etc. Below them are the Avidar, who are like lesser Demi-Gods. All of them are below the Evergod, of course.
Magic is the very runoff of creation, some of it leaking out of the other realms into our own. You can get various types of magic from various places. Some is even within ourselves since we our star-children made from the very dust of the earth.
Why is the village afraid of the volcano?
Because Roth'Maglor the Decimator resides within, the Demon given the name from the Nine Days of Desolation when he destroyed the city that was once Varone and killed 100,000 people in just 9 days. Or a Dragon, maybe.