It is situated in the shadow of the Lonely Mountain. It was deserted for many a year whilst the mountian was under the thrall of Smaug the Dragon. The town was repopulated after the Battle of Five Armies (featured in The Hobbit) where Bilbo Baggins and his Dwarf companions broke into the dragon's stronghold to steal his treasure. During this period the Men of Esgaroth upon the Long Lake (a nearby town) managed to kill Smaug. The Battle of the Five Armies began as a squabble over who the treasure belonged to. When this was settled the dwarves reoccupied the city under the Lonely Mountain and men began to settle once more in Dale.
Dale and Esgaroth were then united as a single kingdom under Bard the Bowman, and the dwarves helped to rebuild the town of Dale.