All races except humans have the potential to grow into something stronger over time. Once all of your character's ten stat categories are maxed out, (strength, dex, wisdom, etc) you can choose to transform (charisma is a static stat, and does not need to be maxed to reach next evolution). 

You will for a time be weaker after doing this. Your stats will fall below what they were, so you will have to raise them back up through training. However, you will now have better racial resistances and fewer weaknesses while having higher statistical maximums than before. There are sometimes chances of a random 'extra' that occurs to a person when they transform that will not occur to all, like perhaps extra strong scales that help armor class. The following is a list of the races and their evolutions.

                          * Selectable Races *

          First Evolution       Second Evolution     Final Evolution

          Bane                  Hellspawn            Balrog
          Brownie               Satyr                Centaur
          Claygoyle             Margoyle             Gargoyle
          Dark Elf              Drow                 Drider
          Dretch                Brezu                Tannari
          Dwarf                 Hill Dwarf           Mountain Dwarf
          Efreet                Mayrd                Shaitan
          Earth Mephit          Fire Mephit          Magma Mephit
          Ellyllon              Sidhe                Seelie
          Equus                 Kirin                Unicorn/Pegasus/Thestryl
          Frost Giant           Reef Giant           Storm Giant
          Gnome                 Visntinivi           Snifvliblin
          Goblin                Hobgoblin            Troll
          Hill Giant            Stone Giant          Cloud Giant
          Hobbit                Halfling             Tallfellow
          Kalcin                Kalichin             Kalchi
          Lizardman             Dragonkin            Dragon *
          Medusa                Naga                 Gorgon
          Mermaid               Aquatic Elf          Siren
          Orc                   Ogre                 Merrow
          Rakshasa              Weretiger            Werepanther
          Sylvan                Dryad                Nymph
          Verbrege              Giant                Athach
          Wild Elf              Grey Elf             Siltha
          Yuan-ti               Half-blood           Fullblood

                        * Racial modifications *

          Ghost                 Vampire              Skeleton

* Dragons: Note that dragons come in 9 varieties, based on alignment and a bit of chance.  For further specifics, please refer to help dragons.

Racial modifications are not chosen races, but if you can find the secret to making a ghost, zombie, skeleton or vampire, this change tacks onto and alters your existing race.