Alright, let's begin this highly informal (ie: I have no references in front of me, but I know the material well enough to be able to tell the story without it; I just can't give you any dates) discussion with a review of some of the basics of Tolkien's world of Middle-Earth. To begin, let's look at the races.
HUMANS are, well, human. You know what we are? That's what humans are. Very short lives, can die of illness, or war, or old age.
ELVES are fairer than humans, and if it wasn't for war, they would not die. Which is to say that they do not die of old age, and illnesses do not touch them. They don't get along with dwarves at all.
DWARVES are short, stout creatures that live within the mountains. Great miners, they live longer than humans, and are stronger in constitution as well. They, in turn, don't get along well with elves.
HOBBITS, also known as Halflings, are even smaller than dwarves. They sport large, furry feet, are often somewhat round around the belly, dark-haired, and are a very proper people who dislike talk of adventure, let alone going on one.
ORCS, sometimes known as Goblins, used to be elves. They were captured by the first Dark Lord, Melkor, and tortured and disfigured. They hate the light, and all things good.
Got it? Good. Now, the history of The One Ring begins during the Age of Sun, after Melkor's defeat at the hands of the elves. When this happened, his first lieutenant, Sauron, took over. At one point during this age, Sauron disguised himself and lived among the elven smiths to learn the craft of making magical rings. From their teachings, he crafted the nineteen Rings of Power. Three he gave to the elf kings, seven to the dwarf lords, and nine went to human kings. Once these rings had been given out, Sauron returned to his land of Mordor and, in the fires of Mount Doom, he crafted The One Ring. As he hammered it into being, he muttered a phrase in his Black Speech, which was engraved upon the ring:
"Ash nazg durbatuluk, ash nazg gimbatul, ash nazg thrakatuluk, agh burnum-ishi krimpatul."
In the speech of humans, it is translated as:
"One ring to rule them all. One ring to find them. One ring to bring them all. And in the darkness bind them."
Then Sauron put on his ring. The elves then recognized him for who he was; they removed their rings and hid them from the Dark Lord. The dwarves and humans were not so lucky.
Sauron used the dwarven rings to amass for himself their considerable wealth, held within their mines. The humans, on the other hand, used their rings for their own personal greed and power. The rings gave them neverending life, and soon they wasted away until they were neither dead nor alive, but rather wraiths, who answered only to their Lord and his Ring.
These nine, known as the Ring Wraiths or Black Riders, but named the Nazgul in Sauron's Black Speech, were feared among the free peoples. They were Sauron's most terrible servants.
Soon, using the power of his ring, the Dark Lord began to spread his shadow out from Mordor and across all of Middle-Earth. The free peoples decided to take a stand against his orcken army. And so began what was to be called The Last Alliance of Elves and Men. They fought against Sauron's orcken hordes, but things were not going well at all, for the Dark Lord's power was great. This was not meant to last, however, as Prince Isildur, using his father's sword, cut the ring from Sauron's hand. Isildur did not destroy it, though. No, instead he kept it as a sort of trophy.
For, you see, the Ring has a will of its own. Once cut from its Lord's finger, its sole goal was to find a way back to its master. And so it influenced Islldur, causing him to keep the Ring instead of casting it into the fires of Mount Doom (this being the only way to destroy it).
The One Ring is a magical ring, as you might have guessed. It turns its wearer invisible, but it can also change its size. It was in this way that it betrayed Isildur. For, one day, he was swimming in the River Anduin when he was ambushed by a band of orcs. He put on the Ring, but it decided to slip from his finger. Isildur was killed by orcken arrows, and the Ring sank down to the bottom of the Anduin, where it would sleep for countless years.
It was eventually found by two cousins who were fishing one day. They were hobbits, or something like hobbits, and one was pulled under by a particularly strong fish. When he came up from the bottom of the Anduin, it was not without a prize. No, in his hand he had Sauron's Ring. Beside him sat his cousin, Smeagol, who saw the Ring and wanted it instantly. Smeagol was a greedy one, and it was his birthday as well, and when his cousin refused to hand it over, Smeagol murdered him for it.
The Ring took hold of Smeagol as he abused its powers to spy on his people and steal eggs from birds' nests. The people soon began to call him "Gollum" because of a noise he made at the back of his throat. Eventually, they drove him out of their village. He fled to the Misty Mountains, where he made a home in the deepest, darkest cavern, on an island in the middle of a small lake. He ate the blind fish that swam there, and used the Ring to hunt goblins when he was feeling adventerous. The Ring was Gollum's "precious," his "birthday present." He would talk to himself and to the Ring constantly. And in return for his devotion to it, the Ring granted him exceptionally long life. It also tortured and twisted him until he was no longer a hobbit-like creature, but something entirely different.
But the Ring soon slipped from Gollum's finger, too, as was its will. And it lay there, somewhere in the caverns of the Misty Mountains, long lamented by Gollum and forgotten by the free peoples of the world.
Then, one day, a hobbit by the name of Bilbo Baggins wandered into the Misty Mountains. He was on an adventure (quite unwillingly, I might add) with a group of dwarves to free some treasure from a dragon. His dwarven companions had been captured by the orcs who dwelled in the mountains, but he had stumbled and somehow escaped. He came upon the Ring completely by chance, and slipped it into his pocket. As chance would have it, he also came upon Gollum. He made a deal with the miserable creature: play a game of riddles; should Gollum win, then he could kill and eat Bilbo; should Biblo win, then Gollum would show him the way out. After an intense bout of riddles, Bilbo asked the winning question: "What have I got in my pocket?" He did not mean it as a riddle. On the contrary, he had been rummaging through his pockets while trying to think of a riddle to ask Gollum, and when his fingers came upon the Ring he asked the question aloud. Gollum mistook it as a riddle, and Bilbo, instead of protesting and saying that it truly wasn't meant to be one, played upon the creature's misconception and insisted that he answer. Given three guesses, Gollum failed every one. But he had no intention of keeping his promise. He dashed off for his island hoping to find his "precious" and use it to kill Bilbo anyway. Little did he know that Bilbo had the Ring in his pocket, and at this point he slipped it on and discovered its power to turn him invisible. Gollum returned to the shore to find Biblo supposedly gone, and reasoned that if he knew the way in, then he must know the way out. With that, Gollum dashed for the exit, followed closely by Bilbo who was still wearing the Ring. Once by the exit, Gollum waited, afraid to go any further because of the orcs. Bilbo, however, had no such qualms. He leap-frogged over Gollum and dashed forward, followed by Gollum's maddened shrieks:
"Thief! Thief! Baggins! We hates it! We hates it! We hates it forever!"
After his adventure, Bilbo returned to his home of Hobbiton which was located in the heart of The Shire, a pleasant little community. There the Ring rested in a glass jar on his mantle, waiting for the day that Sauron's spirit would send out his Nazgul and his orcs in order to find his Ring and gain control of Middle-earth.