Disguises, when used with the Stealth skill, can help your character avoid being harassed or outright attacked by aggressive factions. Disguises can be especially helpful if a character is an escaped slave, an ex-slave, or has a bounty.
Armour that is classified as a disguise will note this and the faction it belongs to at the top of the item description in-game. Once equipped, a player can look at their inventory screen and in the top right they will see an indicator as to who they are disguised as, and the effectiveness of that disguise based on certain factors. For example, your disguise will be less effective if you are engaging with the faction that disguise belongs to, and the territory you are currently in.
This system of disguises allows a player to get around particularly detrimental diplomatic rankings, for example the Holy Nation are the main suppliers of animals (produced at Holy Farms) and as such having a poor score will limit your access to them. A player can disguise themselves as a Holy Nation ally (if there is such a thing) and trade with them. Be careful however, depending on the effectiveness of your disguise guards may uncover your deception if you stay to long or get too close.
If the character's disguise is blown, they will be attacked by whomever discovered them, most likely raising an alarm. If discovered by the United Cities faction, that character will receive a bounty for "uniform theft."
Be careful not to be disguised as a faction which the local faction is aggressive towards (ex: slavers disguise near factions opposed to slavery). For example, wearing a Holy Nation uniform and walking into Shek territory will cause the Shek to attack, even if the person wearing the HN uniform is also a Shek and allied with the Kingdom.
Kenshi 1.0.31 Patch
The disguise system gives the player more subtle tools to access areas and conduct covert operations without relying entirely on brute military force or high stealth/assassination combination. Helmet, Leggings, and Chest plate will usually provide 100% or near 100% disguise. However, if the player is recognized before or during the disguise, there is a huge penalty that gets applied the next time the disguise goes off cooldown. Every time you are detected to be performing uniform theft, your disguise will be "blown" until you wait about 250s. There will be a penalty afterwards as well, as people now recognize your face, so being meticulous in your covert disguise operations will increase the chances of bypassing security at close range.
There is also a penalty associated with using disguises from one faction and then going directly to that faction's members. There is approximately a 40% penalty, subtracted from the 100% optimal total. In a sense, it would be better for you to don their ally's disguise, that way they don't recognize your faces or think "I haven't seen you here before". Certain factions have allegiance with each other, such as Traders, Slave Traders, and United Cities. This allows you to use the two other faction's uniforms to deceive the one faction, without penalty.
Escaping as a slave is one way to use the disguise system almost immediately. Even though there is an incredibly high penalty associated with using disguises against a faction that has enslaved you (50% from the disguise percentage), it can still pass you through a gate checkpoint depending on luck and stealth. You will need to "knock out" any member of that faction, that utilizes a uniform, and don enough pieces to reach 100% disguise.
Be aware that there is a risk to using a faction uniform disguise even if that faction is neutral or allied to you, because even using one single piece of equipment will draw aggro if they discover it. Walking around with one piece of equipment because the stats are good, is not a good idea as it will make your disguise be blown very easily.
When disguised, your player is recognized as a member or ally of that faction and will have green mouse icons on that faction's members, signifying ally status. They will defend you or heal you, and you can... do whatever you want while the deception holds. In fact, when disguised, when you engage sneak mode, you will trigger detection arrows from your own player faction members, as they are now considered to be "neutrals". This will not un-stealth you but it may cause some fear factor.