This is a system in the game that definitely shines. Each character created can have various cosmetic outfits that overwrite the armor that is currently being worn. There are purely cosmetic pieces, but characters can use other pieces of armor or clothing to create whatever kind of outfit they desire. Further accenting this system is the dye mechanic, where any item that is shown on a character can be dyed with a wonderful array of colors, which are increasing in number as expansions come along.
This system allows a character to have a very identifiable look and not come out as a cookie-cutter model of every other member of their race and class. There are pretty good websites devoted to showing off some of the best combinations of clothing.
Also, cosmetics lends to role-playing, giving many character the chance to have various looks for stories they might create.