Masquerade Goblins use this creepy magic to expand their territory. However, even other Goblin tribes could not tolerate and started to object this kind of witchcraft, and gradually the Masquerade tribe has disappeared in the history. Never thought we could see them here.
According to the literature, the mask functions as a receiver which can receive the brainwash waves from the Masquerade Totem.
Based on your information, the Masquerade Goblins you saw were actually the town citizens who became assimilated. That is why you couldn't find any citizens in the town.
Go and destroy the totem in the Nombardi Town. Stop the broadcasting of the brainwash waves, it might no be too late to rescue these poor citizens.