I think that all three of Tolkien's major works are masterpieces in their own way.
The Hobbit is a beautifully crafted children's novel, moving seamlessly from 'Wind in the Willows' type territory into something much more akin to 'Beowulf'. And he does it for kids. Amazing.
LOTR is a genuine fairy-tale for grown-ups. And again, there's the same movement as in The Hobbit: we start off in Wind in the Willows and quickly move into Beowulf territory, except in LOTR it's much darker and the stakes are much higher.
Both are extremely popular and accessible books.
The Silmarillion is the backdrop: the over-arching vision: the mythology which shaped the above books: the real heart and soul of Tolkien. It's a wonderful book and it awes me.
But it is not accessible. It's for die-hard Tolkien lovers only. I have to say that reading Sil increased my appreciation of LOTR ten-fold. I saw LOTR with new eyes.
Which is your favourite out of the three, and why?
My choice is LOTR. Because in LOTR the beauty and the magic is up close and personal. Whereas in Sil it's much more remote and detached.