Kerberoi refers to a species of genetically engineered beings designed to hunt down and kill Diamond Dogs. Ironically, as Fluttershy stated, 'it takes a diamond dog to catch a diamond dog'; thus, kerberoi were cloned from diamond dog base material. What would eventually almost wipe out the species came from the species itself.
Plans for these creatures were originally conceived by arcane geneticists working for Fluttershy's Bureau of Wildlife Management, but she forbade continuation of the project and had the details sealed. This was one of the events that led to the rift between the BoWM, Applejack's Bureau of Agriculture, and Rainbow Dash's Bureau of Radicalness Development. This also put her at odds with many senior government officials (though not Princess Twilight Sparkle, who backed her friends) and FlimFlamCo.. Those organizations eventually conspired to have Fluttershy demoted from head of her bureau.
The plans for the kerberoi were one of the dark government secrets revealed by Apple Bloom.
Astrallania's Third Era government rediscovered the kerberoi plans. The diamond dogs during that time had apparently been in some degree of rebellion, which is only partially elaborated on in the original novel.
Only a small number of kerberoi survived into the Fourth Era, preserved in the ruined Department of Life facility. The facility AI releases them shortly before the showdown with the EAS Sunlight, and they play an important role in Lozenge and company discovering Fluttershy's fate.
In Source: Third EraEdit
Their employment is further expounded on in TheMissusD's Source: Third Era. It states how they were used to hunt diamond dog dissidents, and how the feature that causes them to violently explode when killed was not originally present, but added later. One chapter is even told from the perspective of a kerberoi.
This novel, as stated by Hierophant, is not considered canon.