There are currently five worlds orbiting the Sun which are known as Dwarf Planets: Ceres, Pluto, Haumea, Makemake and Eris. Ceres is the closest Dwarf Planet to the Sun and Earth, orbiting in the Asteroid Belt between the orbits of Mars and Jupiter. Perhaps the most famous of the Dwarf Planets is Pluto, which was discovered in 1930 and was classed as a planet until 2006. Eris, discovered in 2005 is the largest of the Dwarf Planets. Pluto, Haumea, Makemake and Eris are usually located beyond the orbit of Neptune in an area called the Kuiper Belt. They may also be known as Trans-Neptunian Objects (TNO), Kuiper Belt Objects (KPO) or Plutoids!
The reason that Ceres, Pluto, Haumea, Makemake and Eris are known as Dwarf Planets and not just Planets is because of the fact that the path of their orbits isn't clear. Basically, they orbit in regions populated by lots of other objects. The eight traditional planets (Mercury, Venus, Earth, Mars, Jupiter, Saturn, Neptune and Uranus) make their journeys around the Sun with few objects getting in their way. This is because any objects have either been absorbed by the planets, or pulled into an orbit around them and become a moon. This would have happened billions of years ago during the formation of the solar system. Ceres shares an orbit with thousands of asteroids and Pluto, Haumea, Makemake and Eris are accompanied by a number of other Kuiper Belt objects. As their title suggests, Dwarf Planets also tend to be much smaller than regular planets (all Dwarf Planets so far confirmed are smaller than Earth's Moon).
The Dwarf Planet category was created in 2006 after it was realised that there may be several Pluto-like objects in the Solar System, especially after the discovery of Eris, which was nicknamed Xena until receiving its official name. These newly-discovered objects have elliptical and tilted orbits and don't really fit in with the rest of the planets in the Solar System. Plus, if they all became known as planets, the Solar System could one day contain tens, maybe hundreds, of planets, most of which are small, distant and, when compared to the more well-known planets, quite insignificant. These new worlds were also too large and round to be asteroids or comets. However, the creation of this new category meant that Pluto had to be demoted from planet to Dwarf Planet and Ceres had to be promoted from its classification as an asteroid. Eris was automatically added as the third Dwarf Planet. Haumea and Makemake were added to the category in 2008. There are likely to be several more Dwarf Planets to be announced over the coming months and years, including possibly Orcus, Sedna, Qauoar, Varuna and Ixion. These are all round worlds found to be orbiting the Sun in the Kuiper Belt and even more distantly.