Clothing isn’t really a matter of choice in much of historical Europe. What you wear isn’t so much fashion as a method of telling people how you deserve to be treated. Many games don’t deal with this at all: people wear whatever, mechanically, gives their characters the biggest bonuses. Their clothes don’t look like a rich medieval person’s, because they send no message. In some computer games, to encourage people to not look like their clothes have been shaken onto them by a thiftshop zombie, there are “set” bonuses. Dress like a warrior-priest of the goddess of darkness and night and you sneak better, but only if your gloves match your shoes. She cares about accessories more than what’s in your heart.
In much of historical Europe, sumptuory laws existed, and these made it illegal for the wrong sort of people to wear various things. Fur fringes, weapons, silk garments, certain colours…all of these are not to be worn by those with plebian blood. If your character is a poor farm boy off for adventure, that excludes him. Wear the wrong coloured shirt and you are literally telling a caste of armed men that they should bow down to you when you walk past. This can get you fined, beaten or imprisoned in certain countries.
In Venice, the middle class women loved game-lawyering the sumptuory laws. So, fringes might be banned, but if it was detachable it wasn’t a fringe, now was it? A particular colour might be banned, but if you added a little black, then clearly it was an entirely different colour and was fine. Eventually the authorities gave up, and rich people took to wearing the stuff only really rich people could afford. Venice got really colourful and, to more staid communities, terrifyingly deabuched, really quickly.
Sumptuory laws had various rationales. One was that the rich dyes and fabrics came from the east, and so the money for them was being given to the other side of the Crusades. Buying cool stuff from Araby funded mercenaries for the Islamic nobiliy. How true this was is debatable, but it was a reason given at various times. Another was that the poor lacked the moral fibre to have cool kit. It would lead to pride, and covetousness, and the sorts of things that rich people with dedicated spiritual advisors would steer clear of. The final reason, though, is one of the most popular in cities like Venice: in the medieval world, no sensible person believes that everyone is equal. The point of clothes it to tell people where you stand in the social hierarchy, so that there’s no need for violence to force the people below you to act in a suitably deferential way. Given the tendency of the people in the Italian city states to start intergenerational games of “do you like my knife?” politeness was important.
When we look at many of the things medieval people wore, they seem a bit silly to us. Their conspicuous consuption seems a little odd. Even if we accept that their understanding of economics was poor, and so they thought that rich people saving money caused recessions, their belief that rich people should live not at the edge of their income, but at the edge of their credit, appears bizarre. The point, though is this: your status in medieval Europe is being constantly checked, through series of signals. Your expenditure fuels these signals. Do you regularly throw the parties required a of a senior courtier? Well, then you obviously have powerful friends. Have you sold off the family silver? Then you can’t afford mercenaries or dowries. Status is performed, but not everyone is permitted to perform.
Fashion is part of this: it forces consumption, so it separates the vastly rich from the merely wealthy. Fashion can also be political. Far later, the cavaliers and roundheads, for example, made their political and religious allegiances obvious through cleaving to, or cleaving from, luxurious fashions. This isn’t quite so popular early on.
Player characters rarely seem to care about signalling through clothes. De Tocquville, when he toured America, noted how crushing the false equality of American manners was. You were meant to simultaneously treat everyone as your equal, and yet know who was actually in charge, and not slight them by actually treating them as your equal. De Botton mentions there is something oppressive in the idea, codified in the Ars Magica rules, that your character can theoretically do what everyone else can do. If you have the same potential as everyone else, but don’t become terribly rich and powerful, it’s because you are of weak character. Medieval Europeans don’t believe this: mortal life is fundamentally unfair, and God tallies up things, to create justice after death. Even the Protestant ideal that good people will be favoured materially in this world for their hard work has no followers yet. You need to signal your role, because the world, and society, don’t care about you much.
In Ars Magica, there’s a little social signalling, but it’s mostly kept within the society of wizards. If your magus turns up to a tribunal and there are a bunch of guys wearing red and orange, they are likely to start setting things on fire. If there’s another group in grey-black, that’s House Tremere, which wears a uniform because they are essentially a political party. The house of messengers wears red caps, to say that they have the rights of magicians, even if they lack powers. The magical police force, the hoplites, wear sashes. Average humans have no idea what any of these signals really mean, with the exception that they know hurting redcaps is bad luck.
In the opposite direction, there were marks to exclude. The obvious one is that Jews were forced to wear various clothes markers. This was theoretically for their protection, and the protection of nearby gentiles. The right to farm the Jews, which is to say, soak them for cash, was owned by various powerful lords, and if you beat up a Jew, you were preventing his farmer (and that’s literally what the practice was called in English) from collecting as much cash, and could expect a lawsuit. Criminals also had marks to prevent them being mistaken for citizens. Prostitutes in much if Italy needed to wear red capes, shoes, or hats. In Ars Magica, where the messengers of magicians wear red caps, and have their home base in Italy, this has surely led to needing to punch someone in the face.
One house tells humans that wizards wear blue robes with stars on them, conical hats, and carry staves. These wizards need to speak and move their hands to cast magic. This is the House that likes sneaking around civilisation the most. By making sure that people know that wizards look a certain way, and can be depowered with simple preventatives, they make their own lives easier, because they do not wear blue robes most of the time, they use spindles or wands instead of staves, and most of them can cast magic with bound hands or silently. The only strong signal mortals have about magicians in Ars is a deliberately false one, to set up a contact protocol which aids the magicians.