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.
With respect, is is a poor word. Aside form how people think it means things it doesn't, we are using the word as if it should have sociological meanings and moral implications.
For tens of thousands of years, modern humans, Homo Sapiens sapiens, have been the only known sentient, sapient, language using species on our planet. It is only recently that we have considered the issue of creatures like dolphins, and that tis largley ignored by the public. In English, the words "people" and "humans" are effectively synonymous. Our language does not actually have a word for "those who are people, but not humans".
So, for us, "they are a different species" means a great deal. It carries with it a strong connotation of otherness - to the point where "dehumanizing" is a basic tactic to make something morally acceptable. Make it not-human, and that means you can treat it like an animal.
That... should not be the case in a world that has a score or more people who are so different, but still people.