After the War of Wrath, the creatures of evil created by Melkor all fled before the power of the Valar, the Balrog of Moria was one of them, he embedded himself in Moria till he was awakened by the dwarves. Smaug was a dragon that came from the north where many dragons were roosting. they came down and sacked the Grey Mountains, which was inhabited by the dwarves. Smaug was one of these dragons that basically sacked Erebor and took its wealth for his own.
EDIT: though not as powerful as Glaurang or Ancalgon, he was still the greatest dragon of his days, till his death by the hand of Bard.
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