At first sight, it seems that the superiority and inferiority of various Elvish 'kindreds' were determined solely by their choice to obey the summons of the gods and follow Orome to the Blessed Realm. From Chapter 3 "Of the Coming of the Elves" of The Silmarillion, we have this account of the differentiation of the Elves:
"Then befell the first sundering of the Elves.. the kindreds...willing to depart and follow Orome... were known ever after as the Eldar...But many refused the summons... and these are the Avari or Unwilling....
The Elves were first divided into 2 groups based on their decision to obey the gods. The first group is the Eldar, from which all the Elven characters of LOTR were derived. Tolkien did not give much significance to second group, the Avari.
As for the Eldar who began the journey to Valinor, the Blessed Realm of the Gods, Tolkien further divides them into tribes with specific physical attributes:
The Vanyar: blond
The Noldor: pale-skinned, black-haired and grey-eyed
The Teleri: no description of them as a group, but at least some were silver-haired
[Galadriel's mother, who was Telerin, is described as having hair of "starlit silver"1. Celeborn, who is Sindarin (Telerin who remained in Middle Earth), also has silver hair. Thranduil and Eol, both Sindarin, are blonde and "dark" respectively. ]
The physical differences also seem to correspond to differences in strength of mind and character. According to the narrative of The Silmarillion, the best-behaved Eldar tribe is without doubt the Vanyar: All of the Vanyar made it to Valinor, and they stayed there in obedience to the gods. All the Noldor made it to Valinor, but many of them rebelled against the gods and returned to Middle Earth. Next in line are the Teleri, not all of whom were focused enough to make it to Valinor. Many remain in Middle Earth and never saw the Blessed Realm.
The moral superiority of the blond Vanyar is implied in this description of the Elves in The Silmarillion:
"The Eldar prepared now a great march from their homes in the East...The smallest host and the first to set forth was led by Ingwe, the most high lord of all the Elvish race. He entered into Valinor and sits at the feet of the Powers, and all elves revere his name... The Vanyar were his people; they are the Fair Elves."
In Unfinished Tales, we read that Galadriel owes her nobility of character to her Vanyarin heritage: "there dwelt in her the noble and generous spirit of the Vanyar, and a reverence for the Valar..." 2
The Vanyar alone are not deceived by the devil Melkor, who had ingratiated himself with the strong and intelligent Noldor.3 As for the Teleri in Valinor, Melkor considers them "tools too weak for his designs". So among the Elves of Valinor, we have the Vanyar at the pinnacle, followed by the Noldor and then the Teleri.
The Teleri who started on the journey to Valinor but did not finish it are subdivided into the Grey Elves (Sindar), the Nandor, and the Laiquendi. Together with the Avari, the Teleri who remained in Middle Earth are counted as The Dark Elves, distinct from the Elves who have seen Valinor - the Elves of the Light. An offshoot of the remaining Teleri are the Silvan elves, "remoter kin of the Sindar... closer in kin to the Nandor..."
The Noldor, having returned to Middle Earth, are in turn judged superior in both beauty and strength to the Sindar, since the Sindar (Grey Elves) had not the advantage of having dwelt with the gods in Valinor. In Unfinished Tales, Tuor, a human raised by the Grey Elves, noticed the difference when he first encountered the Noldor: "... they were fairer and more fell to look upon, because of the light in their eyes, than any of the Elven-folk that he yet had known."4
The Sindar, though inferior to the Noldor, are described by Tolkien as superior to the other Dark Elves in Chapter 10 of the Silmarillion:
They are called the Sindar, the Grey-elves of starlit Beleriand; and although they were Moriquendi, under the lordship of Thingol and the teaching of Melian they became the fairest and the most wise and skilful of all the Elves of Middle-earth.[Note: Moriquendi means Dark Elves, Melian is a Maiar, a spirit of the race of the gods of Valinor]
Here it is apparent that what makes the Sindar more beautiful and clever than other Dark Elves is their leadership, not any inherent biological superiority. The power and beauty the different Elven tribes are accorded correspond to their degree of obedience to the gods.
Nevertheless, the idea of "greater" and "lesser" races remains a key focus of Tolkien's world, surfacing throughout the narrative with statements such as "... Mithrellas was of the lesser Silvan race (not of the High Elves or the Grey)..."5 The idea of lesser and greater races will be explored in another article.
1. Unfinished Tales, p241
3. The Silmarillion, p71
4. Unfinished Tales, p23
5. Unfinished Tales, p260