The races are the thinbgs holding the bearings. What fossyant is saying is that the cups the bearings sit in can get pitted due to wear, lack of grease etc. Once they are like that it is impossible to get the bearing to move smoothly. So the whole headset needs to be renewed. I think the split plastic thing you are referring to is the little compression ring which holds everything in place when the top cap is tightened to pre-load the bearings. It is split as it expands when it is fully seated.
Thanks for input guys, after taking to the LBS upshot was wrong type of bearings ! , now before you label me a divvy, there are a handful of caged bearings for 1 1/8 headset, and the old ones were very corroded and so it was difficult to see if my new ones were a perfect match. At least I had the "satisfaction " of putting everything back in right ! Also the with the split seal I decided on getting a whole new headseat for the sake of £15-£20. But its good to give these things a go you never learn other wise !