Eru is the supreme being, God. Eru is transcendent, and completely outside of and beyond the world. He first created a group of angelic beings, called in Elvish the Ainur, and these holy spirits were co-actors in the creation of the universe through a holy music and chanting called the "Music of the Ainur", or Ainulindall in Elvish.
Eru alone can create independent life or reality by giving it the Flame Imperishable. All beings not created directly by Eru, (e.g. Dwarves, Ents, Eagles), still need to be accepted by Eru to become more than mere puppets of their creator. Melkor desired the Flame Imperishable and long sought for it in vain, but he could only twist that which had already been given life
Eru created alone the Elves and Men. This is why in The Silmarillion both races are called the Children of Illvatar. The race of the Dwarves was created by Aule, and given sapience by Eru. Animals and plants were fashioned by Yavanna during the Music of the Ainur after the themes set out by Eru. The Eagles of Manwe were created from the thought of Manwand Yavanna. Yavanna also created the Ents, who were given sapience by Eru. Melkor instilled some semblance of free will into his mockeries of Eru Illvatar's creations (Orcs and Trolls).
other LOTR artwork of mine: