Many years ago Bethesda did a interview called "Skeleton Man's Interview with Denizens of Tamriel", which was a interview that was also a roleplay between the Devs.
According to the interview, and I quote.
http://www.imperial-library.info/content/interviews-skeleton-man
Xal, a Human Maruhkati, Port Telvanis:
Ah. I will tell you the truth, because you will believe none of it. The Brass God is Anumidum, the Prime Gestalt. He is also called the divine skin. He was meant to be used many times by our kind to transcend the Gray Maybe.
The first to see him was the Shop Foremer, Kagrenac of Vvardenfell, the wisest of the tonal architects [Mechanists - MN] Do not think as others do that Kagrenac created the Anumidum for petty motivations, such as a refutation of the gods. Kagrenac was devoted to his people, and the Dwarves, despite what you may have read, were a pious lot-he would not have sacrificed so many of their golden souls to create Anumidum's metal body if it were all in the name of grand theater. Kagrenac had even built the tools needed to construct a Mantella, the Crux of Transcendence. But, by then, and for a long time coming, the Doom of the Dwarves marched upon the Mountain and they were removed from this world.
The head Dwemer Tonal Architect Kagrenac used the tools and the heart of Lorkhan to merge the Dwemer race into Numidium's body.
It was later confirmed by lore writer Michael Kirkbride on the Bethesda Forums
http://forums.bethsoft.com/topic/482103-made-up-word-round-up/page__p__6918676#entry6918676
"Kagrenac was devoted to his people, and the Dwarves, despite what you may have read, were a pious lot-he would not have sacrificed so many of their golden souls to create Anumidum's metal body if it were all in the name of grand theater. Kagrenac had even built the tools needed to construct a Mantella, the Crux of Transcendence."
Okay. So now everyone can stop posting about where the Dwarves went. I TOLD YOU EIGHTY YEARS AGO.
Filthy with it, I am.
The entirety of the Dwemer race, sans Yagrum in Morrowind, merged themselves into a giant robot, and became its metal skin. They did so to try and ascend outside of the mortal realm. The biggest question relating to the Dwemer is not where they went, but why did Numidium not ascend.
Also this fate is shown in Skyrim during the College of Winterhold quest "Arneil's Endeavor", which, at the end, results in Arniel disappearing and you gaining the ability to summon his shade. Much like the Dwemer before him, Arniel became fused with the closest divine object, you, the Dovahkiin, he who carries the divine dragon blood, just as the Dwemer were merged with Numidium.
.
.
For more reading on the Dwemer's motivations please read "Final Report to Trebonius", which explains in detail just about all important Dwemer lore we have.
http://www.imperial-library.info/content/final-report-trebonius
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