In the Creepypasta, he is spawned in several random places. Mostly seen standing next to BEN, his form is still the same. He is seen in a few of the videos and has an even creepier feeling to his appearence.
In the original game, he is seen as you enter the world of Termina and explains that he has been following your character, Link. He tells Link the story of what he wants you to do and why. He explains that the Skull Kid has stolen one of his masks that wasn't for sale. He proceeds to talk about the powers of the mask and what becomes of the owner.
The Happy Mask Salesman is also seen in one other game in the Zelda series. The Legend of Zelda: Ocarina of Time. He is seen in a Mask Shop in the Hyrule Kingdom during Link's child timeline. This is simply just a sidequest. You may deliver masks to the correct NPC's and get prizes out of it.