It depends on your setting, but usually it's the same as calling Africans and Asians different races. We're all a part of the "human" race, but we're different "races". As Cacian said, you could say that humans and dwarves (and even elves) are all one species, or they could be different species. In most fantasy settings, though, I don't think it matters. The term "race" is more broad than "species", which is why we can use both.
In fact as a whole we're not a "race" but a species. To be a race, we'd have to be able to reproduce with another race and there are none. There has been some speculation that we have have cross bred with neanderthals in the past and if there were any left, homo sapiens could be regarded as a race. But unless you count australians as a a seperate race, then we're the human species and race should be relegated to the bin.
Delusions from the past, but you can make them anything you like. I'd tend to agree with Craigpay, though, for tidiness sake.
Two questions: a) Can they interbreed? (Without some sort of magical intervention, at least?) b) If they can interbreed, are the resulting offspring fertile? (And live long enough to potentially make use of that?) If you have them unable to interbreed, or able to interbreed but the hybrid children are infertile, or always die in childhood, then they're different species according to the biological species concept. (Most of my stories are like this, the one exception is very plot-relevant.) But if the hybrids survive and can produce their own offspring, then they're just different races. (Which is how most writers go, since half-elves seem to be so popular.)
