Tell him how you feel. You have a right to refuse to do anything that makes you feel uncomfortable and he should respect that.
It sounds like you are talking about sex. In no case should a father-in law have sex with his daughter-in-law, it’s just wrong. Adult Role-play generally is something romantic couples do; children role play but it is different for them – they are trying to figure who does what and why.
If he is asking you to treat him as the sex he is dressed as, if you choose to be around him, then you need to honor his request. There are times when you might need time to adjust and go in little steps, so tell him. But be willing to give just as much as receive when it comes to acceptance. He isn’t going to change BUT he can willing to meet you in the middle. IF it has nothing to do with sex then he has every right to do what he wants (legally) in his home. If you don’t like it – you lose out.