There are a few things we can infer just from taking a cursory glance at the material provided. We know that it is the biggest point of civilization for the province's southeast corner, since we know that Argonia is colonized from the outside-in. Therefore, it probably was an important port and probably handled prisoner transfers as they continued onto Blackrose. It also was a likely layover area for ships from the bustling port of Senchal to stop on their way up to Morrowind (Next stop likely being Tear). This trade significance then puts the city onto a priority list for Imperial Navy patrols and Census and Excise officers, so as to help halt piracy. Since Morrowind was still (illegally) obtaining Khajiiti slaves, then that means that Lilmoth likely had some kind of well-established smuggling ring connected to the slave-traders of Tear.
Beyond that, I don't know, aside from this little nugget from the PGE3, implying deep and forgotten historical roots
In additional to the reptilian Argonians, who are today Black Marsh's most visible denizen, there were once tribes of men - Kothringi, Orma, Yespest, Horwalli - and tribes of mer - the Barsaebic Ayleids and the Cantemiric Velothi - and even a tribe who may have been related to the Khajiit of Elsweyr, the vulpine Lilmothiit. Some were sent to Black Marsh as refugees of prisoners, other settled along the coastal waterways and adapted to its strange and usually insalubrious environment.
The cities of Stormhold and Gideon were originally founded by the Ayleids (their Ayleid names are unknown), but were so far removed from their culture in the heartland that they never were attacked by the Alessian army when it rose in revolt. The southern coastal regions, not surprisingly, were the realms of the Lilmothiit, though they were a nomadic group and left few enduring signs of their existence that were not covered up by later civilizations. The Balck Marsh elves settled in the eastern regions near present-day Archon, Arnesia, and Thorn.