The Free Peoples of the World were those races who were not under Sauron's domination.
History[]
By the later Third Age, Sauron had Orcs, Goblins, Trolls and other creatures under his control, and other peoples like the Men of Darkness enslaved or allied with him. As such, the Free Peoples were the Elves, Men, Hobbits, Dwarves, and any folk who opposed him.
In the Council of Elrond, Boromir made a mention of the "Free Lords of the Free", possibly referring to the rulers of the Free Peoples, such as Elrond or Denethor II, while suggesting that they should use the One Ring against Sauron.
The members of the Fellowship of the Ring were specifically chosen so that at least one representative of all the free peoples would be there: one for the Elves, one for the Dwarves and two for Men. As they had appeared relatively late in the knowledge of most, Hobbits were generally not reckoned among them until the War of the Ring.