Here's where the movie magic comes in. I'm no stranger to CGI and special effects in movies and TV. I get the basics like green screens and motion capture but what baffled me was how they made Bilbo and the Dwarves appear smaller than Gandalf and the Elves without it looking fake or awkward. This scene is a perfect example.
This is a scene where the group reaches Rivendell, home of the Elves. That's Thorin in the foreground with Elrond next to him and Gandalf then Bilbo and Balin. For The Lord of the Rings Trilogy I just figured they used shorter statured actors for Dwarves and Hobbits. Elijah Wood is 5'6'', Sean Astin is 5'7'', Billy Boyd is 5'6'' and Dominic Monaghan is 5'7''. For perspective, Ian McKellen is 5'11'' and Hugo Weaving is 6'2''. Here's the kicker, Richard Armitage (Thorin) is 6'2''. Yes, he is the same height as Weaving yet they look like, well, an Elf and Dwarf. You really can't appreciate the effect until you see it live in the movie though.
Here's a picture of some of them for more perspective.
From left to right, Gollum, Peter Jackson, Bofur, Bilbo, Galadriel, Thorin and Gandalf.
Anyway, go see this movie. It's beautiful, moving, humorous at times and as I said - Epic.