Here's two frames from the movie showing Odin molding a maggot into a dwarf. The process is simple. First, kill a frost giant. Then, take his dead body and make a world, using his flesh to make the earth, bones for mountains and hair for trees. Then. wait for maggots to appear from the rotting corpse. Take the maggots, do some molding and ta-da! You've got a dwarf. There's no female dwarfs though, so if you wanna be nice like the Gods, give them a couple of princes that can forge more out of rocks.