The race of a creature is a classification according to similar traits. The degree of similarity defining a race varies greatly, from being a single species to encompassing all creatures from several planes, with playable races more narrowly defined than non-playable races. In total, there are twenty-five races included by default in Neverwinter Nights.
Several races have typical characteristics (e.g. immunity to critical hits), but these are not enforced by the game. (It is up to a module builder to give those characteristics to the members of the race.) The only common uses of race within the game are for racial modifiers and as the means of determining which creatures are affected by certain abilities, such as turn undead and favored enemy.
A creature's race is independent of its appearance, so custom creatures could very well not belong to the race they look like they should be in. On the other hand, the illusion of a connection is intended. The only means of changing a creature's race — polymorphing — usually also changes a creature's appearance. In addition, a player character's race determines its appearance (or more precisely, which body parts are available as these are part-based appearances).
All player characters must be one of the playable races (barring custom content and a custom character creator). In addition to determining what choices are available for the character's look, the choice of race determines the size of the player character — small for gnomes and halflings, medium for the others.
Note that half-breeds (half-orcs and half-elves) are considered to be of a different race than their full-blooded parents.
Monsters and non-player characters have additional options for their race.
Nonplayable races (18): aberration, animal, beast, construct, dragon, elemental, fey, giant, goblinoid, magical beast, monstrous humanoid, ooze, orc, outsider, reptilian, shapechanger, undead, and vermin.
The nonplayable races are not to be confused with a creature's class. (Aside from goblinoid, orc, and reptilian, these are also the names monster classes.) The monster classes are intended to represent the progression of creatures that have not had adventuring training, yet may have experience that warrants additional hit dice. For the non-playable races, this sort of "commonplace" learning is represented by the class of the same name as the race; for the playable races, it is represented by the commoner class. A creature can have up to three classes, but only one race.