When referring to the race (or sub-races, kindreds) directly as a whole, he capitalized them because they are proper nouns. When referring just a group of them, especially an unspecialized group, as a creature or creatures, he didn't capitalize them because they aren't proper nouns.
Tolkien explained it well when he commented on this capitalization style in Letter No. 21, a note to an employee at his publisher:
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Men with a capital is, I think, used in text when 'human kind' are specifically intended; and man, men with a minuscule are occasionally and loosely used as 'adult male' and 'people'.
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'Hobbits' is capitalized on many occasions, but throughout the story you usually don't see it capitalized because it is being used in reference to the four in the Fellowship - not the entire 'hobbit kind.' It's capitalized in the very first sentence of the prologue, and several times afterwards:
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This book is largely concerned with Hobbits, and from its pages a reader may discover much of their character and a little of their history.
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Here are some other examples to illustrate the difference between This and this.
Elves/elves:
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He could dimly see the grey forms of two elves sitting motionless with their arms about their knees, speaking in whispers.
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Not Elves; for the woodland folk were altogether noiseless in their movements.
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Dwarves/dwarves:
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As is told in The Hobbit, there came one day to Bilbo's door the great Wizard, Gandalf the Grey, and thirteen dwarves with him: none other, indeed, than Thorin Oakenshield, descendant of kings, and his twelve companions in exile.
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‘Beyond the eyes of the Dwarves are such foretellings,’ said Gimli.
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