In my day to day life, I hear people who aren't scholars or omniscient narrators use the term "race" when describing different categories of people.
In my day to day life, I don't, although I suppose I do hear the term on television news and the like. Which, come to think of it, is a kind of attempt at omniscient narration heh.
I got to imagine then that elves in a fantasy setting could conceivably use the term "race" when discussing humans or dwarves or dark elves or what have you.
Yes, I can imagine it too. Elves are a haughty bunch, right?
Others who have had the time and inclination might think in those terms. I'm not saying it's impossible. There is a sort of archaic use of race that might sound natural coming from a medieval-ish narrator or character. The race of dragons. The race of Northmen. Etc. I still think it's more of an overview type of thing, so a narrator or a character elf-splaining things to students in a class or something, but characters sometimes do that in dialogue.
I think it's just kind of the way of intelligent beings to want to categorize things and an elf would be like "us and dwarves? Two different races. Us and cows? Different species." I think expository dialogue like that to explain how the world works is pretty standard in a fantasy novel.
But who are they explaining this to? I think the difference between elves/dwarves and cows ... goes without saying? "As you know, Bob, elves and dwarves have intelligence that is superior to the intelligence of cows. Ergo, different in kind." Heh.