A disguise set casts Incognito on you when you use it. Each kit has a maximum of 7 charges, and can be recharged using scrolls of Recharge and the Fill Charge ability.
Just like the Incognito spell, disguise kit will prevent guards from attacking you when your Karma is -30 or lower, and will prevent guild NPCs from attacking you if you're not a member of their guild. Guards are only fooled for the duration of the effect, but guild NPCs will stay non-aggressive until you exit the map or save and reload.
Changes in Elona+
As of build 1.30 Guildmaster NPCs are no longer fooled by Incognito (which makes sense, given that they know all the members of their guild) and will attack even through your disguise. Come prepared with Teleport and/or Teleport Other spells, or Teleport rods, so that you may get around the area quickly, or teleport them away if they come too close. Otherwise, be prepared to get minced.