He's an egomaniacal little blue man who travels very quickly. He's surprisingly generous.
The party first met Derro in a cell inside Fort Chattle. He shared this cell with Sutter, a member of the caravan. Sutter said Derro had been torturing him for the duration of his imprisonment. According to Sutter, the orcs controlling Fort Chattle didn't know Derro existed, and Derro could enter and leave the cell on his own. Derro was clearly insane. He told the party that the fort was the castle of his kingdom. He denied the presence of any orcs in the fort, even though there were several dozen of them living there at the time. He gave the party a pair of magical boots, but didn't explain their enchantment. The boots turned out to be useful, but also dangerously cursed.
The party met Derro again in the cave to the west of Chattel. He was in a part of the cave that was supposedly inaccessable before the party opened it up. He told the party that the cave was his castle, and gave them some poisonous potions.
Derro was briefly seen in the streets of Hemmaby City.