Wikipedia describes the strategy in a little more detail. Dáin sent a cadre of his skirmishers into the centre of the battlefield (along with some elf troops to support them) in order to bait the orc army into attacking en masse. When their enemy's troops were fully committed, the plan was to draw back their skirmishers, enabling the troops waiting on the side of the valley (the troops you noticed seemingly waiting in reserve) to encircle the Orcs, pinning them down with elven archers from their left flank and hitting them in the right flank with Dwarf foot troops.
The Dwarves and Lake-men formed up on one spur and the Elves on the
other, while a light rear-guard lined up across the mouth of the
valley to lure the Goblins between the two other armies, and thus
envelop them. Bilbo Baggins hid himself with his ring, hoping to avoid
My apologies for the crude battle map.