Richard tells us that Lorelai the First was famous for her masquerade balls. These are formal dances where everyone attends wearing a costume and a mask to hide their identity. Originally they were entertainments for the aristocracy, and were traditionally held in the Carnival season before Lent.
Perhaps it is from Lorelai the First that Lorelai and Rory inherit their love of dressing up in costumes.
The Annotated Gilmore Girls 