But why do Hobgoblins and Dwarves fight? Dwarves say Hobgoblins did something dishonable and Hobgoblin nature wont let a major insult go without bloodshed. 4 seconds of thought.
This can just as easily apply to people of different cultures. Oh, wait, in fact historically it HAS... very often.
Except there's historically been so much intolerance. Certainly it can and does go the other way, but complete tolerance can seem unrealistic, and that issue matters to some.
This. Totally this.
But then people will say, "I don't want to play in a fantasy world where I have all the same issues there are in real life." To which I say, "Ok, but why do you have issue with the fact that I DO?"
When people talk about how diverse the world is now, I shutter. Do you
really believe that? In some places, in modern times, maybe. But that wasn't the case so very long ago and it certainly IS NOT the case in many places in the world
now. I've traveled enough to know. Yes, I can find tolerant people, but I also have meet a vast majority more who are NOT tolerant.
I run my games in a medieval setting like most D&D games IME, and I have no issue with having people being intolerant of others for whatever reason. It makes the world more "real" to me, which by contrast makes everything that is magical and fantastic seem
more so. Yes, I have some places which are centers of cultures and trade where you will more likely find a hodge-podge of races, but those are few and far between. Most countries tend to be a single race, with often less than 10-15% being any other races, which as others have suggested are typically located in those large centers of trade, etc.