In a fantasy setting, there are two types of evil: Evil of the individual and evil of the group. The first applies to singular characters of your novel, while the second can apply to entire races or cultures. In the first case, the evil, as noted in the prior post, comes from the individual’s character which is in turn formed by the individual’s personal ideological beliefs and such. In the second case, the evil comes strictly from the ideology of the group. It is the latter case which allows for things like racial alignment in D&D or in a world like Middle-Earth where all the orcs are evil.
It is worth noting, that neither individual alignment (we’ll just call it alignment for us gamers) is necessarily dependent upon group alignment, or vice versa. Just because the group alignment of orcs is evil, doesn’t mean this particular orc is evil (although it may be a good bet). Likewise, just because this particular pixie is evil, it doesn’t mean all pixies are evil (that’s not even a good bet). I never read the “Forgotten Realms” novels, but I believe there was a good drow elf named Drizzt Do’Urden running around (I just looked it up on the Net—there was). And that is a case in point.
Group alignment provides a simple way of setting up cultural conflicts in your book. The goblins are at war with humans because the humans are good and the goblins are evil. Pretty black and white. The benefit here is that the sides are well-defined as is the preferred victor. Although war in the real world may not always be so morally stark (although sometimes it is—think of WWII), in the fantasy setting there is nothing wrong with embracing such simplicity. Making it more complex (and perhaps realistic) by say dealing with wars between two good races makes it a little more difficult to determine who to root for. For myself, when I read of, say, human on human war, I get annoyed because it just strikes me as unnecessary carnage.
Individual evil is a whole other animal. One has to be careful when crafting evil characters for your story. Their purposes should be detailed and specific. They should be ruthless and cruel, but their goals and motivations should be complex and intriguing. One of my favorite evil characters (though I read the series when I was much younger) was Raistlin Majere from the Dragonlance series, the dark mage who kinda-sorta-if he’d wanted to-became a god. He was deliciously evil. And, of course (perhaps I should have listed this first), I’m a big fan of my own Lucian val Drasmyr, the master vampire from my book Drasmyr.
Anyway, those are my thoughts on the subject.