I believe Falmer were originally elves of some sort (snow elves?) before they degenerated into their CHUD-esque form (that big statue at the end of the Nightingale quest is the only representation of what they looked like before).
So they're monsters now, but they were 'human' before and judging from their slave pits in that massive underground cavern, retain enough 'humanity' to know how to be cruel.