Lake-town was a settlement of men on Long Lake, and was built entirely out of docks that could be separated if necessary. This design made it easy for the Lakemen to catch trade goods that were sent down the River Running by the Elves of Mirkwood.
The Lakemens' main appearance in Tolkien's works comes in The Hobbit, when Thorin and Company escaped from Mirkwood by stowing away in barrels and floating down the river. The Dwarves entered the town and were welcomed generously. The Dwarves stayed in Lake-town for a few days, and then made their way towards the mountain. After Bilbo Baggins accidentally caused Smaug to assume that he was a Lakeman, the dragon became full of rage and flew off to destroy Lake-town. The dragon attacked Lake-town and proceeded to burn it until he was killed by a Black Arrow shot from Bard the captain of the guard, who held his ground with a few loyal men while everyone else, including the town leader fled.
Once the Thorin's Thorin and Company realized that the dragon wasn't coming back, they moved into the mountain and held it. Meanwhile, the elves of Mirkwood had been building up an army to go and claim some of the hoard left by Smaug; also the goblins of the Misty Mountains also had built an army to avenge the death of the Great Goblin. The Dwarves of the Iron Hills led by Dain also built an army to save Thorin and regain the Lonely Mountain for the Dwarves. The Lakemen gathered what troops they had left and joined the elves in front of the gate, hoping to get some of the treasure in order to rebuild the town. The Dwarves, elves, and armies of men met and were about to do battle when Gandalf arrived and alerted them of the host of goblins. The three races, along with the help of the great eagles, united to combat the massive goblin army. When the battle was over, the coalition had won the day and the Dwarves had regained the Lonely Mountain, the elves received some of the treasure as well as the men, who rebuilt the town of Dale in front of the gates of Lonely Mountain.