They're just animals. Khajiit are feline elves, not cats but rather too-close-for-comfort kin of the Bosmer.
That, I believe, is correct. It's the same as how Argonians look like lizards but lizards aren't just mini-Argonians. Of couese, Argonians have different origins from Khajiit, but the point is that just because they happen to look a bit like certain kinds of animals doesn't mean they're the same kind of lifeform.
Though, I'm not sure if "feline elves" would be the best description, since I'm not sure if the ancestors that Bosmer and Khajiit share were yet elves at the time, they just share ancestry with Bosmer (sadly.) but became a different race.