Weevil

Best answer as chosen by Asker / Ratings
To sell the masks, you need to wear them while talking to people, then confirm that you want to sell it to them. You can only sell it to them once. After the sale, the character will be wearing the mask. You can then go back to the Mask Shop and get a new mask to sell.

The first mask you need to sell is the Keaton Mask. Sell this to the guard at Kakariko Village, who is guarding the gate at the base of the volcano.
The second mask you need to sell is the Spooky Mask. Sell this to the kid playing in the graveyard during the day.
The third mask is the Skull Mask. Sell this to the Skull Kid in The Lost Woods (go left after entering). You can also use this mask at the Forest Stage (drop into the concealed hole in the grass, with butterflies over it, in the area with 2 Deku Scrubs and a tree) in The Lost Woods to get an upgrade to your Deku Nuts/Sticks. Although some people say that you cannot get this upgrade if you've already become an adult.
The last mask is the Bunny Hood. You sell this after you've got all 3 Spiritual Stones, and have the Ocarina of Time. During the day, they'll be a guy running around Hyrule Field on the dirt path. He'll sit down during the night, so use the Sun Song. He'll be running around the field counter-clockwise.

When wearing the Spooky Mask and talking to the kid in the graveyard, he'll get startled. Then he'll go on to say that "Oh, it's only a mask." and "That mask gives me a different fright than Dampe." and so on. Then he'll ask you to sell it to him.