Each character has a unique alignment value. The alignment values range along a scale as follows:

-99 (Max Chaos) ---- 0 (Pure Neutral) ------- +99 (Max Lawful).

Thus there are 199 possible alignment values (if you count 0).

A freshly created Lawful character has +9 alignment.
A freshly created Chaotic character has -9 alignment.
A freshly created Neutral character has 0 alignment.

Ways to change alignment:
Pray at the temple matching your alignment: 1 TOWARDS your alignment.
Pray at the temple opposing your alignment: 2 AWAY from your alignment.
Each time you gain a level as a priest of a particular alignment: 4 TOWARDS your alignment.
Use a Level 3 or 4 Divine Spell in Combat: 1 AWAY from your alignment.
Use a Level 8 Divine Spell in Combat: 3 AWAY from your alignment.
Use a Level 9 Divine Spell in Combat: Unknown.

In order to create High Elf or Dark Elf characters, the TOTAL alignment value of all the characters in
your guild has to meet or exceed -200 for Dark Elf and +200 for High Elf respectively. Furthermore, the
moment the characters' total alignment value dips below the requirement, you can no longer create these
characters (although the ones that you already created will remain). Thus you can never create both
High Elf and Dark Elf characters at the same time.

The final requirement is that you must have at least three characters matching the alignment of the elf
you want. So if you have two Lawful characters of +99 alignment for a total of 198, plus a Neutral
character with +2 alignment (total 200), you still won't qualify for the High Elf until you have a
third Lawful character.

This explains why you won't be able to create these characters right off the bat.
Say for instance you create 20 Lawful characters. That means your total alignment will be 20 * 9 =
+180. You're still 20 short and out of slots. Now say you delete one of those characters (dropping your
alignment total to 171). You will now need to raise the total alignment of your characters by 29 points
(by gaining levels as a priest, praying to a Lawful temple, etc.). Once you do so you will now be able
to use your last slot to create a High Elf.

Credits to Charmy on the Game FAQs forum.

Note that you must enter the temple between prayers. If you pray repeatedly at a temple without
entering the tower, you will gain no extra benefit.

1 prayer at the temple = 1 faith
50 prayers at the temple without reentering the tower = 1 faith
50 prayers at the temple with entering the tower between each prayer = 50 faith

Credits to Mistikman01 on the Game FAQs forum for this added note.

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