Polycarp

I think that Polycarp was put there to set the scene like the title of the chapter suggests. When we write compositions, we are told to include setting. Polycarp could be the author's setting in the story.
Maybe it was "fashionable" to have garden dwarves in those times.
I think Herr Resch treated Polycarp with care and attention because it was a "Resch family heirloom", though not an expensive one. It could also have belonged to one of Herr Resch's late relatives who was very close to him. That could be the reson why Herr Resch treated Polycarp with respect and ask his wife to trim the grass when it grew too long to let Polycarp have a view of the dahlias. Herr Resch could also be very sad about that late relative's death and thus did not treat humankind well because he could have thought that it was not fair that his relative had to die when other people were alive and kicking.