Most fantasy races strike me as traits of humanity exaggerated, like light shined through a prism. Indeed, humans somehow feel redundant in traditional DnD settings to me (aside from being something for players to easily relate to). While humans are just humans, the other racers are just what tropers might call 'flanderized'. A human is capable of becoming pretty much anything another race can, aside from immortal. While there are much more narratively and creatively substantial ideas to take (IE dwarves have no pupils and all that jazz) that's how I 'naturally' picture them.
Humans- Like I said, capable of being anything. A group of mercenaries or bandits will usually be human; they're the only race with a significant peasant population (and thus people who will do dirt work to get out of peasantry). Most of my characters are human 'learned fighter' types. To be quite frank, this is because I always go for lots of feats and the combat expertise tree in DnD.
Dwarves- Fond of the underground and cold weather if outside, for they build most often in the mountains. They are either very raucous and disorganized (The Hobbit) or for a strict honor code and etc- there's room for both in one setting. They're the best craftsmen and drinkers, very stout and stubborn, and have magnificent facial hair. In a word, Scotsmen.
Elves- They're immortal, and magically powerful. Usually connected to nature- dark elves are just connected to cave biomes. They're very proud, and that may or may not be justifiable. Like bows, not fond of (or at least not skilled with) metal. They are lithe and have a great resistance to all natural ills. If they build shelters at all, they only use them for sleeping in.
Goblins are usually bandit clans of some sort. They're fond of slavery and almost never do their own farming and labor. They fight a lot, but aren't brave except in numbers. There are very, very few learned goblins- more common are war-chiefs. They live in camps and shoddy wooden huts.
Orcs are much like goblins, but big enough to be scary on their own. Any typical orc is tougher than a human who hasn't specifically been training for combat. They can be conscripted by evil overlords, usually by bribing the warchief. Since they are less fearful of other races, they tend to be more literate, although they usually can't read or write- sometimes they have their own runes. Fond of heavy armor and weapons if they can get (steal) them.
Kobolds are rat-like in their "culture", albeit physically reptilian. They are often slaves to larger races like goblins or orcs. They are more vicious and spiteful than the other vermin races (the group I lump goblins, kobolds, orcs, bugbears and so-on in) and like to build traps. They can be more intelligent too, if given the opportunity to do more than hunt or do labor.
Dragons- Large, solitary creatures. They're about as intelligent as dogs, and albeit more difficult to domesticate, it is technically possible. They never speak. They also nigh always breath something harmful and can fly. They have a cat like sense of territory and don't migrate much, nor do they take well to towns popping up on their turf. Can be quite ancient.
Gnomes- Slightly shorter than dwarves, and a lot lighter. Very smart, a typical gnome can read and write fluently. Gnome societies might approach modern bureaucracy in complexity. Depending on the setting they might use magic or technology, but not quite steampunk- imagine some of DaVinci's more absurd ideas realized. While their society is similar to humans it tends to be separate; gnomes and humans don't share cities well. A cosmopolitan area might have gnome doors (or human doors) if it gets a lot of travelers. Not especially prone to 'adventuring' though they love to travel and get into trouble as much as anyone else. Most gnomes would probably rather divert a river to flood a dungeon than fight the monsters in it though, and would state that that's just common sense.
Trolls- Huge brutes. Use clubs. Have no concept of conjugation. Sometimes forced into evil employment, but they usually just chill it in caves and eat whatever comes too close. May or may not have their own language, rarely speak common.
Fairies- Small, magical denizens of less-traveled areas. They're fond of pranks, but will help an adventurer on their way when the need is dire. The cruelty of said pranks varies widely depending on the setting.
<Animal>-Men- They inhabit whatever environment their given species does. They have their own language and usually aren't fond of outsiders. They live mostly by hunting and gathering, not unlike their counterparts. Depending on how intelligent the animal is, they may or may not like to hunt other civilized races, or "gather" their gold. If they're in a city, the players will often end up defending them from some racist straw man. Strangely, they don't interact with, and indeed and rarely even seen with, the non-man variation of their animal. If they do it's a deconstruction.
(http://th02.deviantart.net/fs24/300W/f/2008/008/9/7/Furry_Pets_by_B1nd1.jpg)
Demons are pretty much always evil. They might cut a deal for their freedom, but it rarely ends well. Mostly you just shank them (or if the player is feeling enterprising, they can cut a deal to get the demon's loot/powers and THEN shank them). They have a True Name that can be used to control them. Nobody ever thinks of using that name to tell the demons to destroy themselves; if they did there wouldn't be so many imprisoned demons for you to cut deals with and then shank. They look pagan gods and are associated with pagan imagery, most of the time.
Gosh, what else is there... Djinni (Genies), elementals, undead... I don't feel like covering it all. :P
I have thought of many fantasy settings over my life, and each had different interpretations of the standard races.
For now I'll use the depictions from my EFFIGIES webcomic:
(http://i675.photobucket.com/albums/vv120/pfat417/worldmap1.png)
forget about Svart territory, I plan to remove that from ther map
MAJOR RACES
HUMAN BIOLOGY
Predominantly Pale-skinned, due to climate. Otherwise Identical to real humans, barring a few differences, such as hair colour (William the human archeologist has blue hair)
HUMAN CULTURES
Followers: Ambitious and diplomatic, living in a psuedo-feudal series of autonomous collectives. Industrial Human towns line the coast of the Civilized world, and pastoral villages dot the inland plains. These humans follow a christian-based religion with an emphasis on fire and the sun (their version of Jesus was burned at the stake rather than crucified) Their religous center is a large church-city known as The Keep. Their languages in-setting are identical to English and latin.
Outlanders: A simpler, more superstitious people, who are rumoured to still follow old Pagan religions. Very little contact occurs between them and the more civilized humans. Their languages are germanic-based.
DWARVEN BIOLOGY
Shorter than humans, but far heavier and stronger. Both genders grow beards. They appear to have no pupils, but this is actually due to a second eyelid which covers their eyes to keep out dust. They have a much higher tolerance for alcohol than humans do (they must drink a lot more for it to have an effect) this has lead to a stereotype of dwarves as gluttonous drunkards.
DWARVEN CULTURES
Mountain Dwarves: The "true dwarves" as they call themselves live in an underground city Beneath Mt. Bakar. Their religion has a form of Ancestor Worship, with a strong belief in the afterlife. These Dwarves are master smiths, stonecarvers and engineers.
Hill Dwarves: Called "Dwarrow" (a dwarvish word meaning "foreigner/immigrant) by the mountain dwarves. These are slightly taller dwarves who live in and around Human society.
Cave Dwarves: The 'Duergar", subterranean boogeyman who may or may not actually exist. They are spoken of in dwarven Fairy tales as menacing creatures who kidnap lost children.
ELVEN BIOLOGY
Taller than humans, but far lighter and faster. Males rarely grow beards. They appear to have no pupils, but this is actually due to the fact that their eyes produce their own light, making the pupil and iris appear white and luminescent. Their bodies have trouble deriving nutrients from meat and dairy products. As such, they live mostly on Vegetables, beans and bread.
ELVEN CULTURES
Trowe: Warlike wood elves, with a religion based on discipline and physical fitness. They supplement their diet with various dairy products to make up for the elves' naturally weak bone strength.
Sylvans: Peaceful woodelves, with a religion based on nature worship. They are renowned for the quality of their baked goods. They smoke a peculiar herb as a recreational drug (though they claim that they ingest it for religous reasons).
Half-Elves: Umbrella term for elves who live with (and interbreed with) Humans.
KOBOLD BIOLOGY
Kobolds are savage and Ratlike, with arrow-tipped tails and bright yellow eyes. They can see in the dark and their saliva contains a mild venom which causes drowsiness. Their bodies are very inefficient at processing nutrients - they must consume large quantities of food to actually get any nourishment.
KOBOLD CULTURE
They have a pack-oriented culture predominantly centered around scavenging, infighting and stealing. They will wear stolen clothes, but can not make their own. The extent of their weaponmaking ability is taking pieces of wood, metal, bone or rock and sharpening them. it is unknown if they speak a language or not.
GOBLIN BIOLOGY
Goblins are Immortal, and are capable of going into hibernation underground for centuries at a time. They are very strong for their size. They can see in the dark, but going out in the sunlight makes them dizzy and nauseous. They can move very fast in complete darkness. They can survive losing a considerable amount of blood.
Goblins experience pain differently than other races - severed limbs and bruising cause them no discomfort, but they do feel pain from burning, organ damage, and head trauma. Goblin blood burns and coagulates when it contacts iron (but not steel!). This is very painful to the goblin.
CULTURE (just one)
Martial and warlike, with a very blunt sense of honour (you have wronged me. I'm going to kill your entire village). Goblin society is organized into three social classes, each with an associated clothing colour: yellow for working class, Red for Soldier class, blue for ruling class. The ruling class includes the royal family and the priesthood. Goblin priests serve as messangers to the troll tribes which associate with goblins.
OTHER DANGERS
TROLLS
Biology: Mysterious and powerful immortals. They can not truly die - if you leave their corpse lying long enough it will grow back and return to life. They slowly turn to stone in the sunlight, but can turn back to flesh if they stay in the dark long enough. No two trolls look exactly the same, but they are all grey-skinned humanoids of with six fingers and tufted tails.
Demeanor: They are conniving and tricksy, but not unwilling to resort to brute force. Their morals are shifty at best, thought they have been known to cooperate with goblins on occasion.
Trolls are rumoured to be the sons of a fallen angel and a mortal man. unlike ogres, trolls adamantly follow the complex plans of their divine father.
OGRES
Biology: The "cousins" of trolls, ogres tend to be more solitary and civil than their tribal brethren. Ogres can shapeshift to appear as humans or animals, but their true form will always resemble giant, burly men with horns and tusks.
Demeanor: They are not very outrightly hostile to mortals, but will not hesitate to kill (and eat) them if they cause trouble.
DEMONS
"demons" are defined as creatures that were created rather than born. It is an umbrella term describing various beings (as defined by the raw material they were created from)
True Demons: Servants/warriors of divine beings, created using souls as a raw material. Due to having a true soul, they can learn and adapt, which other demon types are incapable of doing.
Golems: simplistic demons made of rock or metal.
Homunculus: More complex demons made of corpses or body parts.
DRAGONS
Biology: dragons resemble many-limbed metal snakes. Their scales are composed of black metal, and their innards are a complicated system of tubes and organs composed of white-hot metal. The dragon can breathe fire by mixing combustible gases within its body. The dragon's flanks are covered with metallic gill slits, through which it vents excess gas from the fire-breathing process. The dragon's underside has overlapping metal plates. Between these plates the dragon secretes a flammable slime. The dragon's eyes and nose are simply vents into it's fiery interior - they constantly exude a red smoke.
Demeanor: The dragon is an enigmatic servant of the gods, sent to tempt mankind and test his true nature.