The masked ball is the ultimate representation of what the guests were hiding from during their entire stay with Prince Prospero. The purpose of their time at the castle was to escape from the Red Death. Thus, a dance where everyone hides their true identity is a perfect climax for the story. The dance represents life. It is significant that each hour, the dance stops for the chiming of the ebony clock, which represents the time until death. The ball takes place in seven rooms, which each symbolize a stage of life. However, as the ball continues, few guests will venture near the final room, which is a symbol for death. This shows their fear of death and the fact that they have all hidden their faces shows how they are trying to hide their true identities and fear of death from each other. Once midnight sounds, the party-goers stop, as life must stop, at the presence of death. In this case, death comes in the form of a plague or Red Death, but it inevitably comes to anyone participating in the dance of life. Once the presence of the Red Death is acknowledged, all the masked figures die, despite their efforts to disguise themselves. Death, it seems, will seek you out and find you no matter where you are or who you try to be.
In "The Masque of Red Death," the masquerade represents the guests' desire to escape the inevitability of death. Remember that these guests have come to Prince Prospero's to avoid catching the Red Death, a disease which has ravaged the country. They are protected from the outside by a "strong and lofty wall" which, they believe, will keep the disease at bay.
The masquerade takes place in an "imperial suite" consisting of seven rooms. Each room is associated with a particular color and it is significant that the guests avoid the room which is black, a color suggestive of death. This reinforces the idea that the guests do not want to confront the realities of death; instead, they spend the night dancing in a different room.
That the masquerade does not protect the guests suggests that death is indeed inevitable. There are no walls strong enough nor houses secluded enough to guard from the inevitability of one's own demise.