The story
From half + -ling. Sense 3 ("half-grown young person") is attested to 1794. It was then used by J.R.R. Tolkien in The Lord of the Rings (1954) as an alternative reference to members of his hobbit race. Hobbits were used in the original 1974 releases of the role-playing game Dungeons and Dragons, but in later editions they were changed to "halflings" for legal reasons, as being a pre-existing word rather than one invented by Tolkien.
Etymology from Wiktionary, CC BY-SA 4.0.