BIOGRAPHY

Whimsical, elusive, and enchanting are the Fey, an alliance led by small, winged humanoids that have thrived by turning enemies into allies.  The Fey have the ability to augment their reality using dust as a catalyst, which makes everything . . . easier and life . . . happier.

Violence is never the answer, but a puzzle to be solved for the Fey.  The Fey have weathered turmoil in the past and they are sensitive to the travails of violence that are inflicted upon the weak by the strong.  Being hollow-boned and dust-senstive, the Fey's ruling caste, the Alfur, were a dying race on their home planet, the rain-forest world known as Miðstöð.  They were easy prey for larger, stronger creatures such as the Dvergur until their sensitivity to dust evolved. Miðstöð is a paradise and represents the goal of the Fey Aliance's desire - to make the universe a better place, just like home.

Now the Fey have found ways to harness dust to aid in the creation of tools and the development of technology that relies on evading and misdirecting would-be predators.  Once their nemesis, the Dvergur are now part of the Fey Alliance, known collectively as the Huldufólk internally, providing the manpower to forge the physical structures that are to be enhanced by the Alfur's dust-magic.  The Alfur's glamour has kept the Fey Alliance safe as they take to the stars and encounter the unknown.  Driven by wanderlust, the Fey explore the awesome universe with glee, their abilities making space exploration just slightly less rigorous and daunting.

The Fey Alliance is diarchical, with the Alfur and the Dvergur sharing power of governance, each Consul with the power to veto the other.  In practice, the Alfur maintain the edge due to their glamour and dust-affined magic.

GAMEPLAY

The Fey are diplomatic pacifists our of necessity - they are ill suited for fighting as their physical forms are exceedingly frail.  Their physical limitations make them absolutely ineffective at planetary invasions and ill-suited for enduring violence.  By way of compensation, they have come to rely on using dust to enhance their position with would-be aggressors.  

The Fey's dust-sensitivity is focused on two mutually beneficial directions, the first of which is avoiding damage in combat through cloaking devices and glamours  that project their ships to be where they are not.  While most effective at longer ranges, this technology provides enough time for the Fey to exit most dangerous situations without harm.  The second element of the Fey's dust-sensitive strategy is in the enhancement of everyday life for their citizens.  Dust-magic enhanced living keeps the Fey population, including non-Fey members of their Alliance, happy despite the hardships of expansion and terraforming.  This results in a permanent bonus to happiness across the Fey Alliance's dominion and for a unique diplomatic tool that allows the Fey player to unilaterally increase their position with others by spending Dust.  This expense represents the gifts and benefits that the other faction receives from the expenditure, the cost of which will increase as the target faction's dominion spreads and their technological sophistication increases.  The cost is thus, cheaper when the Fey are either more populated or more technologically advanced than their target faction.

Faction Affinity:  Dust Enchantment - The Fey's population are naturally happier than other factions and enjoy greater benefit from advances in technology that affect morale.  They are also able to spend dust to unilaterally increase the happiness of other factions, which increases their diplomatic relations positively.

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I like the lore/history of this race, also how they implement Dust magic/technology, which is a good mixup for standard scifi. By "Happiness" do you mean "Approval"? And is there something this race can offer diplomatically to other factions if those factions don't need approval?

Also, I suggest laying out their faction affinities and traits in a bullet point list to make things clear, for instance as I do here.