Diamond Dogs are the war-era ancestors of the modern Equestrian Hellhound.
Before the War
Diamond Dogs traditionally kept to themselves before the war, living undergorund in complicated cave systems. One such group of Diamond Dogs lived outside Ponyville, where they lived in a gem rich region and dug for gems. One noteworthy interaction between ponies and the dogs was during a gem hunting expedition. Rarity was gathering gems for a dress and was kidnapped by the Diamond Dogs. They eventually released Rarity due to her constant whining and complaining. The Diamond Dog home where the biggest concentration of them lived was called Splendid Valley.
During the War
The settlement of Old Olneigh was located close to where the Diamond Dogs lived. The ponies tried to make them leave and they retaliated, leading to the murder of a pony and the involvement of the Equestrian military in forcefully relocating them. The diamond dogs continued to return to Splendid Valley, despite the efforts to keep them out, especially after it was poisoned by the Maripony facility.
After the War
After the war, the Diamond Dogs returned to Splendid Valley where the conditions mutated them into the modern day Hellhounds.
In Other Stories
A group of Diamond Dog cyborgs called the Sand Dogs, live in the Hoofington area, close to the settlement of Riverside. These Diamond Dogs are the descendants and survivors of Diamond Dogs from during the war who moved to Hoofington and helped create the complex tunnels under the city and surrounding area.
Groups of tribal Diamond Dogs live around the New Pegas area. Though the tribal behavior and appearance, appears to be done to mislead ponies as they have been shown in possession of highly ornate and high quality weaponry. They've also been shown as having a militarized social structure, piloting complex machinery and wearing fancy, high quality clothing.
Rangers of Wintertrot
Groups of Diamond Dogs lived in Wintertrot before the war and had thicker coats to deal with the colder climate. They lived and worked alongside ponies, espcially within the city's mines. The Snowhounds are the post-war descendants of these Diamond Dogs.
Duck and Cover!
Relatives of the Diamond Dogs called Coal Puppies lived in and maybe operated the coal mines of Great Braytain. Post-war, they are shown to be mining coal in exchange for food for the industry of Showffield. It is not known whether they are mutated from Diamond Dogs by the war, or were distinct beforehand.
Diamond Dogs were especially quick diggers, able to tunnel through the ground at blinding speed and fill up their holes equally fast.