Okay, can we please agree that the term "species" in this context is at best vaguely suggestive/descriptive? Because the biological meaning we have for it really does not apply to D&D fantasy.
Yes, and if you aren't very specific about how you interpret it... who is to blame for that, hm?
There's a rhetorical technique (and logical fallacy) that is often called "bait-and-switch". Is it where one starts speaking using one definition or meaning of a term, but ends using a different one. When words are of questionable or uncertain meaning in the context in which they are used (like "species" in a fantasy world where dragons can interbreed with almost anything) it is extremely easy to bait-and-switch, often without even meaning to do so.
Thus, my suggestion that we toss "species" when we need to start talking about a fantasy world in which far too many things can interbreed for the Earth-term to apply. If the book uses the term, we should not plow forward as if that has all the meanings we can usually attach to it.
Species isn't a better, or worse, term than race or ancestry. It has a modern and/or sci-fi feel to it, but it isn't a poor word to use when describing the differences between elves, dwarves, and orcs.
IRL, are tigers and lions different species? Of course! Can they interbreed, giving us half-lion, half-tiger cubs? Yup, ligers, probably my favorite animal. Are ligers often sterile or unable to breed themselves? Yes, but not always . . . .
Fantasy creatures often interbreed in weird and magical ways that go way beyond anything possible IRL, of course. And I don't think it's necessary to try and get overly "scientific" when trying to differentiate different fantasy races/creatures . . . . but to say that elves, dwarves, humans, and orcs are all different species isn't really much different than saying they are different races or come from different ancestries. IMO, of course.
So, no, we can not all agree that the use of "species" is too vague or doesn't really apply to the fantasy world of D&D. At least, not more or less so than any of the other imperfect words we have available to use.