Just show them some of more creative and bizarre cosplay costumes that some people show up in, and they'll probably sigh with relief that you only wear a dress!
If you explain that it's not representative of what you consider your nature and personality to be, but it represents a character that you assume online, perhaps that will make sense to them. After all, the lead in the upcoming live tv version of Peter Pan is being played by a young woman; she's an actress playing a part, and the part is very different from whom she is in real life.
Don't get defensive. If the need arises, simply tell them that a cosplay event is a crazy fun time and that people dress up like robots, aliens, lords and ladies of yore, knights, and every type of character imaginable, and that you are having fun playing a part for the continuity of the game. If they ask if it means that you're gay or a crossdresser, tell them you're a creative actor and ask them if they've seen Tootsie or Mrs. Doubtfire or Peter Pan or any one of a million movies where the character dresses like something he or she is not.
I once accompanied my daughter to a cosplay night - she has medical issues and I was there to kind of assist her, and she dressed as one of the many doctors in Dr. Who, complete with men's pants, dress shirt, men's sport coat, scarf, bow tie, a fez and her sonic screwdriver. (I didn't dress up). She had a wonderful time being the 4th Doctor and I spent the whole evening with my mouth and eyes open wide with astonishment and awe (and, ok, sometimes shock) at the variety of costumes. And some, well, I have no idea if they were male or female, or even human! Everyone had such fun and there was such camaraderie. I can see why you enjoy it.