Off to the Races

Elves and Half-Elves

Essential Characteristics: Old, wise, artistic, connected to nature, ancient civilization, rich traditions.
Function in D&D: Elves are a great font of knowledge. Players visit them when they need to learn something, particularly about the ancient past.
Elves and Half-Elves: Elves are often the oldest and wisest race inhabiting the typical D&D world. Their extraordinary lifespans and the remarkable age of their civilization generally combine to result in a very advanced culture that is rich in tradition. As a result, elven society is often dominated by the fruits of this culture, such as poetry, song, and other artistic endeavors.
An important characteristic of elves that stems from the advanced age of their society is an unusual affinity with the mysteries of life. Typically, many centuries of study have allowed the elven civilization to penetrate several of the great secrets of the universe. This is why elves often make such great wizards and sorcerers, and why elves are usually responsible for so many of the magic items found in the typical D&D setting. This same characteristic also explains why elves often share some sort of special bond with nature.
In most campaign settings, elven society is consumed by an air of impending tragedy. The elves usually boast the oldest and most advanced civilization in a typical D&D setting, but these same worlds are always invariably dominated by humans. This tends to imply that the great elven civilization is in its twilight years and slowly waning to make way for a great age of humanity.

Dwarves

Essential Characteristics: Resilient, attuned to the underworld, strong sense of honor, master crafters.
Function in D&D: Like elves, dwarves are a source of knowledge. Their specialties are the underworld and magic weapons. Dwarves also give the players access to important skills and allies in dungeon environments.
Dwarves: Most often, dwarves are inextricably linked to the underworld. Dwarven citadels lie beneath stony mountains or at the bottom of deep dungeons. Their affiliation for these environments tends to define dwarves as master crafters. Since mining and stonecutting skills are so often the key to its survival, dwarven civilization learned to place a high value on these arts long ago. While elven society is often focused on studying and understanding the world, the society of the dwarves is committed to reshaping it. Dwarves believe that the process of creation is the single thread that unites all the great mysteries of life, and they believe the only way to penetrate those mysteries is to become a creator. This is why they'd rather tend a forge than study poetry, and why they are better known as crafters than magic wielders.
Typically, beyond craftsmanship, dwarves respect nothing so much as personal honor. The concepts of self-sacrifice and heroism that fuel this attitude stem from the unique hardships and rugged environments that dwarves face from childhood. To a dwarf, life is a test that must be faced justly. The temptation to unfairly improve one's station at the expense of another is a cancer that threatens dwarven civilization. It's this characteristic that explains their tendency toward the lawful alignments.

Halflings

Essential Characteristics: Resourceful, clever, opportunistic, curious.
Function in D&D: Halflings live among other societies, taking advantage of whatever opportunities come their way. Halfling provide a good neutral source of adventure, either as people who need protection or as the instigators of problems PCs must solve.
Halflings: Halflings are distinguished by their opportunistic mindset. They've never found the motivation to build the sort of elaborate empires favored by elves and dwarves because they prefer to let other races do such things and then take advantage of all the opportunities those empires provide. As a whole, the halfling race is always on the move, finding a way to fit into whatever society can offer them new gains and the comforts they enjoy.
Individual halflings tend to be amazingly resourceful and dedicated. Often curious to a fault, halflings can be lead on the path of adventure at a whim.

Gnomes

Essential Characteristics: Inquisitive, ingenious, mischievous.
Function in D&D: Gnomes create unusual inventions that add flavor to the game world. Their creations can also help the players overcome specific obstacles.
Gnomes: Like the dwarves, gnomes tend to be defined by their craftsmanship. The difference is that gnome creations emphasize function over form and exhibit an uncanny technological sophistication. Whereas the dwarves are master smiths and stonecutters, the gnomes excel at creating mechanical gizmos, alchemical concoctions, clockwork machines and various other complex gadgets. They can't resist the urge to tinker, prod, and explore. The gnome civilization has evolved a unique philosophy that lies midway between those of the elves and the dwarves. Gnomes simultaneously favor understanding and reshaping the natural world, and it is the unique combination of these beliefs that is always pushing them to the fringes of any art or science they decide to explore. Thus, gnomes are talented spellcasters (unlike dwarves), but they are not content to simply unlock the secrets of magic (like the elves). Instead, they're constantly tempted to innovate and create unusual new spells.

Half-Orcs

Essential Characteristics: Outcasts, savage.
Function in D&D: Half-orcs allow players to create "fish-out-of-water" characters.
Half-Orcs: In most D&D game worlds, half-orcs are the ultimate outcasts. Orcs tend to see them as soft and weak, while humans usually regard them as coarse and ugly. The real value of the half-orc as a game concept is that it allows players to take on the role of a "fish out of water" or a "bad boy made good." Assuming the role of an outcast is an unusual challenge that often leads to lots of interesting roleplaying opportunities. Similarly, characters who must learn to overcome their own essentially violent natures to become great heroes are a staple of fantasy fiction and comic books (think Worf on Star Trek or Wolverine from X-Men). The idea of playing such a character is very appealing.

Examples

Now that we've boiled down the standard D&D races, we can identify possibilities for the "lost world" and rule out those that don't fit. Right off the bat, for example, we'll rule out halflings. The tightly knit, clannish societies of this world are on a constant quest for survival, and they are unlikely to allow halflings in their midst. The opportunist mindset of the halflings would be detrimental. They simply don't exist on this world. You shouldn't be afraid to take a similar step when designing your own world. Just because a character race is listed in the Player's Handbook doesn't mean you have to offer that race in your campaign. In fact, if you don't have a clear idea of how the race fits into your plans, you're better off excluding it. If one of your players should select a race you're not completely comfortable with, you'll only be forced to expend a lot of valuable creative energy inventing details you're not ready for.
Similarly, the gnomes' fondness for wacky spells and inventions doesn't fit. Not only do we envision a primitive world that is far less advanced than the common D&D setting, we're also looking to create an atmosphere of savagery and danger. The congenial, carefree nature of the gnomes might spoil that.
Elves, dwarves, and half-orcs remain. To this list, we add three human tribes. This assortment should work out just fine because it will insure that there are as many human options as nonhuman. That should help reinforce the notion that the balance of power is still tipped in favor of humanity.