
To say that they "took some liberties" with the plot is an understatement!
Slag the Dragon ransacked the city of Dale, taking all of their treasures for himself, including the precious Arkenstone. Only General Torin Oakenshield, Princess Mika and a lone, unnamed watchman (who had been asleep when Slag attacked) survived. Desperate, they turned to the Wizard Gandalf in his tower. He pointed them to a prophecy of the Dragon's death, for which they needed a Hobbit. Bilbo Baggins initially refused, but after some persuasion from Gandalf and the princess, joined the three on their quest.
Soon, they encountered two "Groans", monstrous creatures that turned to trees when exposed to sunlight. Bilbo's companions were captured, but Bilbo tricked the two into a fight until the sun rose. They continued their journey, and General Oakenshield and the Princess started to appreciate their burglar. But suddenly, Bilbo disappeared. He had fallen though a crack in the mountain, and fell past the "Grablins" into the lake where "Goloom" lived. He found Goloom's magic ring, and dashed away through the tunnels. He hid behind a rock, and allowed Goloom to overtake him so he could find his way out.
After traveling through Mirkwood Forest, Bilbo came to the Lonely Mountain. He stole the Arkenstone, crafted a bow from mining tools, and shot the Arkenstone through Slag's heart. Slag was killed, and Dale restored. Bilbo returned to Hobbiton with Princess Mika as his wife.