The Hobbit is basically a prequel to The Lord of the Rings. It is more of a children's tale and gives one only a small taste of Middle Earth, but is a good primer for Tolkien's world. The Lord of the Rings itself is, in the opinion of this fan, the work against which all modern fantasy is measured.
The heroes and villains also define the modern fantasy genre. The heroes are a mix of Men, Dwarves, and Elves that are courageous and above reproach. They are obviously unrealistic, but in true fantasy fashion they are characters that one wishes to emulate. The true heroes are Hobbits who are the ordinary and so-called "little people" who rise to the challenge when called upon. The hobbits parallel modern day humanity in that they are common folk not of royal blood or 'destined for greatness'. The villians are evil through and through, even if they had once been good, they are unredeemable now.