To me it seems to be a way of recognising the significance of being an Elf in certain situations: you know more about Elvish lore, other Elves respond to you more favourably, etc.It is. It models/expresses a racial ability that comes into play in certain situations. Unless you're suggesting he'd give the mechanical advantage to elves talking to other elves in elvish sometimes, but not other times. It's just not a formalized model the way that the PHB races use.
I don't see anything being modelled. To give a comparison: in the example of play in Moldvay's Basic rulebook, the GM grants a +1 bonus to the Hobgoblin reaction roll due to the manner in which Silverleaf greets the Hobgoblins. That is not a model of anything either - it's a way of recognising the significance of the non-hostile greeting.