According to the legends, the Falmers were once the graceful Snow Elves. After losing a war with the Nords many, many years ago, the Snow Elves sought shelter with the Dwemers. The Dwemers tricked the Snow Elves in eating a poisonous mushroom, which blinded and disfigured them, turning the Snow Elves into the hideous Falmers of today. The Dwemers then enslaved the blinded Falmers.
After the Dwemers disappeared, the Falmers are now free from their masters. However centuries of living underground had changed them, such that they bear little resemblance to the proud race they once were. Even though the Falmers are blind, they are capable fighters as they have heighten senses of hearing and smell.