Lydia was situated in the Western part of Asia Minor, on the river Galis, with its main city Sardis. It was first mentioned by Homer already in the 8th century BC under the name Maeonia. It was celebrated for fertile soil, rich deposits of gold and silver. Lydia became most powerful under the dynasty of the Mermnadae, beginning about 685 BC. In the 6th century BC Lydian conquests transformed the kingdom into an empire. Under the rule of King Croesus, Lydia attained its greatest splendor. The empire came to an end, however, when the Persian ruler Cyrus the Great captured Sardis about 546 BC and incorporated Lydia into the Persian Empire. After the defeat of Persia by Alexander III, king of Macedonia, Lydia was brought under Greek - Macedonian control. Soon after that, Lydians were assimilated by Greeks, Greek language and Greek culture, and though Strabo in the 1st century AD talks about Lydians as an ethnos, they did not have much of their original language at that moment.
Lydians were the first ones to mint coins in the history of mankind. They made Gold, Silver and Electrum (a mixture of gold and silver) coins at Sardis.
Lydian language belongs to New Anatolian languages, derived from Old Anatolian - Hittite, Luwian and Palaic. When the Hittite Empire fell, Anatolian city-states started a new epoch of Indo-European settlers of Asia Minor. These cities were inhabited both by Indo-European Hittites and non-Indo - European tribes like Hatti, Assyrians, Aramaeans. In the 7th century BC all East and Central Anatolian Indo-Europeans were practically assimilated by Semitic and other tribes, and Indo-European Hittites and Luwians had to move farther to the West, to the shores of the Aegean Sea.
Lydian was inherited directly from Hittite, but has a lot of its own new features. Lydian phonetics is more complicated: nasal vowels [a], [e] appeared; consonant system has several palatals for [s], [t], [d], [l], [n] very widely used. Palatals came from the combination of i + a consonant.
Lydian morphology also differs somehow from Hittite. Nouns are declined in pronominal declension, Hittite noun declension was almost completely lost. Accusative case is being replaced by dative in the meaning of direct object of the verb. Some verbal forms have endings derived not from Hittite same forms but from participles (for example, 3rd person plural has -l ending) or other verbal nouns. Lydian has a wide choice of prefixes and particles with practically every word. Sometimes a personal pronoun has 3 particles before it, all of them meaning just emphasis.
Linguistic science has not yet learned much about Lydian, but the language is obviously Indo-European, and a lot of words represent their Indo-European origin.