As a thing in fiction that serves as a crude allegory for IRL racism it usually adds some flavor to the setting because people do be racist

But yeah these guys are absolutely using it as a substitute

I don't think it's always bad and sometimes just poking fun, like "haha silly orcs how dare you think you could beat me", but when someone makes it their whole roleplay gimmick or says stuff like that all the time, it's for sure a red flag. Like humans hating undead is a strongly established thing, so being an anti-undead zealot fits the setting. But these people are the equivalent of Elder Scrolls fans calling Argonians and Khajit "farm tools" because they're enslaved by the Dunmer in-game. In this case, all their terms were similar to stuff like "wireback" being used for AI/robots by Star Wars people not that long ago.