[Numenorean]

Great thread by the way Kuru -

What was the nature of Dwarves that fell into evil? In what way were they evil?

A trait that has the capacity for darkness, and indeed evil, that seems very common among Dwarves - from the Petty miners to the Lords and Kings - is their pride. As we know, JRRT often reveals in the Legendarium that pride is usually linked in some way or other to a fall, and often that fall is (or leads to) evil deeds.

Being created in secret and in direct contravention of Erus rules by Aulë may also offer some insight into their moral center. If we examine why Aulë created Dwarves the way he did, the Silm. states that:

"...Aulë made the Dwarves even as they still are, because the forms of the Children who were to come were unclear to his mind, and because the power of Melkor was yet over the Earth: and he wished therefore that they should be strong and unyielding"

Is this renowned unyielding aspect of the Dwarven soul linked to their pride, and therefore to their capacity for evil? Maybe its an unfortunate consequence of being created by Aulë whilst he was concentrating on making them resistant to an entity as great and powerful as Melkor?

“I’m just curious about how this developed on a societal level.”

Being as isolated and insular as many of their communities seemed to be could have lead to an overdeveloped societal pride in their own Kingdom, House or Mansion, not too dissimilar to the destructive pride that Turgon and his Gondolindrim had for Gondolin perhaps?

"I think the reason why some of the evil Dwarves fought for Sauron at Dagorlad was probably because he hired them as mercenaries. "

Sounds very likely Kuru though I would maybe just throw the following statement about Sauron from the Silm. into the mix:

"In his beginning he was of the Maiar of Aulë, and he remained mighty in the lore of that people."

On the strength of that I think Sauron actually had quite a unique insight into the hearts of Dwarves. For although - as it is stated by JRRT - the Dwarves were not completely dominated by their Rings of Power, it would seem that they were all lead to misfortune and evil ends by them; what with four being consumed by Dragons and the remainder being physically retaken, most probably under torture, by Sauron himself.