The word “masque” refers to the fact that Prospero and his guests are hiding, masking the reality of the situation.
Prince Prospero’s kingdom has been hit with a terrible plague—the Red Death. In response, Prospero gathered his rich courtiers and they locked themselves away in the palace for constant partying. The fact that it was a masquerade just emphasized how out of touch they were with reality.
When the clock strikes 12, death arrives.
[There] were many individuals in the crowd who had found leisure to become aware of the presence of a masked figure which had arrested the attention of no single individual before.
The representation of death as a masked figure represents both the isolation of the partiers and the fact that no one knows what death looks like or expects it. Prospero is irritated by the masque, which is designed to look like the Red Death.
His vesture was dabbled in blood—and his broad brow, with all the features of the face, was besprinkled with the scarlet horror.
Prospero considers it an insult because his “guest” is mimicking the very thing they are hiding away from. Death is reminding him that he has abandoned his responsibility to his people. It is a reminder to all leaders (and wealthy individuals), that with wealth comes responsibility.