After the Battle of Red Mountain the Tribunal ended up with the Brass God. It worked in so far they had the body, but not a power source. Dwemer figured out away to reverse that process and turn a whole bunch of mortals into a god. TLDR When the gods created the world, they had to split up into mortal. It explains in some details what is being said about the Dwemer by those people and in those books. Lugar wrote a Final Report to Trebonius for the Forum Scholars Guild. The quest has you collect a few books and talk to a few people.

The UESP has the walk-through for the Mystery of the Dwemer. There is a quest in game that allows you to discover what happend to the Dwemer.