So yeah, the undead needs a "real" face or they will be most likely be attacked by everyone everywhere.
But its not only for the undeads, everyone can get a mask, as well as give their followers masks.

And sure if you look like an elf, other elfs will be extra nice. And sure if you look like a dwarf you will get story/quest choices according to what people think about dwarfs. It kinda makes picking a race more cosmetic and no real impact on the game (overlooking some racial stat boost... unless you will also get the race stat of the face you are wearing).. Well not counting if you pick a named character, that will have its on twist on the story maybe.

But the extra annoying thing is; Why would you be able to use another race's racial? Your not changing race, just hiding your real face.

So yeah, i can understand the reason for the undeads to be able to rip the face of someone and wear it, to be able to enter a town. I can also accept that wearing the face of elf would make other elfs except you more. Would make more sense though if the bonus you get for being the "correct race" when talking with people, would be less for someone wearing the mask, than someone who is that race. With the motivation that the person you are talking to get a sense that something is wrong but cant put the finger on it.

So you think that Elfs has the best stats for being a Rogue, but you really like how the lizard looks?
No worry, pick elf and just change your face to a lizard and play the rest of the game as a lizard.

So i really hope there is a good in game and story reason for the mask, specially since its not only for the undeads, but really anyone who wants the best options/prices with the person you are going to talk to.