Action: When one or more dwarf units you control leaves play, deal 3 damage to target unit.

Does this apply to developments that leave play (if development card is a unit card)?

For example:

I have Thorgrim Grudgebearer in play

and use Tunnel fighter's ability:

"You may sacrifice 3 developments to lower this unit’s cost to 0" and one of the developments is a unit.

Will Thorgrim Grudgebearer deal 3 damage to opponent's unit?

No.

Cards leave play as whatever they currently are. They enter the discard pile as what they really are, what's printed on the card. So if a unit card that was played as a development leaves play, it won't trigger "when a unit leaves play" effects, but it will trigger "when a unit enters the discard pile" effects.