Derro are the result of horrible torture inflicted on the dwarves who were unfortunate enough to be trapped in Vilhan's Folly when it was sealed. The demons that had been released toyed with them for years, sometimes creating the illusion that they had a chance of escape or that the demons had withdrawn, only to crush their hopes. When they had been driven thouroughly insane, the demons began breeding with them to create duergagons and other half-fiends. The eventual result generations down the line was the deranged, degenerate race called derro.