I did think that masks played an important role in the story. I haven't read the actual book, but I read this quote from the play-within-the-book from wikipedia:
The King in Yellow Act I, Scene 2d
Camilla: You, sir, should unmask.
Cassilda: Indeed it's time. We have all laid aside disguise but you.
Stranger: I wear no mask.
Camilla: (Terrified, aside to Cassilda.) No mask? No mask!
I actually went into the show knowing that there would be Yellow signs everywhere, because the internet. Some Lovecraftian horrors, this is just IMO, seem to be entities that exist on a higher (and lower?) dimensional plane from our own but are able to manifest in our reality as both physical and non-physical things. They can work as these abstract entities or simply as metaphors for aspects of human nature. They can be both at the same time, because these beings operate on several levels of existence that we cannot physically perceive due to our limited nature as humans.
The Black Star that Cohle envisions and the bones dressed in yellow rags in the finale seem to be the closest as we'll get to a physical representation of The King in Yellow. At once this being is represented as physical objects that can be 'touched' and also manifests in ideology, at once mundane and transmundane, because everything is real. The vision Cohle has is real. It's a drug-enduced vision and at the same time it's a image that represents something unimaginable, a human's attempt to grasp what they are incapable of comprehending. You can see the King in Yellow as something that is not real (on our level of reality) and just something the Cult has made up, at the same time it can be the King who is controlling the Cult and spreading his influence across our plane of reality. Reality and Fiction just don't have the meanings that they normally do when you talk about these kinds of ideas. They intersect at points where the real and non-real worlds meet, or are they directly within one another and we can only get rare glimpses at the true objective world that only a greater consciousness could comprehend fully?
I do think that Carcosa is a term for the domain of the Yellow King. The "Carcosa" we see in the finale appears to be representative of the idea of Carcosa, a place where the human spirit is crushed in worship of the King. Errol was subject to the Cult's ways, which is how the King spreads his influence and gains more humans who have lost their humanity to become his ideologues that act on his behalf. In this way, Carcosa can be seen as what the King is slowly trying to mold the world into by projecting himself through the psychosphere and corrupting the collective hyperentity of humanity, with the repercussions manifesting in the physical world of our sensory perception. I also believe that when one acts on behalf of the King, this is also the King himself as well. Is it Errol who speaks to Cohle in the finale, as he makes his way through "Carcosa," or is it the King who speaks through him?
His influence is most apparent in the hegemonic masculinity displayed by Hart. In this way, the dominant ideology of the Cowboy as the "mask" of America can be seen as the King's doing. These old patriarchal ideals is how the King intends to extinguish the light and defeat the human spirit in order for darkness to reign once more. The corruption of Audrey is the result of Hart's actions, which echoes the actions of the Cult. Not only is Audrey influenced by the King, but so too is Marty, perhaps the King has even a stronger presence within him than he does with Audrey.
I'm basing most of this off of my experiences with, interpretations of and readings on the works of Grant Morrison. I'm not entirely confident in my thoughts since I haven't delved too much into this line of thought, though I suspect Chuckman would be able to put what I'm trying to say in words better and, if need be, correct any misunderstandings I may have. Though, from what I've read, he seems to be really damn busy as of late.