Why Did God Create Ugly People?

Ayelet asks: "Hello. I wanted to ask about physical appearance. It seems that in this world, unattractive or not beautiful people receive different, less favorable treatment. It appears that people love and respect beautiful people more. So why did Hashem create unattractive people in the world? Additionally, does Judaism permit calling a person ugly? Thank you." Hello, Ayelet, and thank you for your question.

Notice that this question can also be asked in relation to wealth, as the wealthy naturally receive more respect due to their social status. However, the Torah does not teach us to pursue wealth. We can find that righteous people who were wealthy were given riches to bring honor to Hashem in the world, primarily for their spiritual role and trials, not because they saw wealth as an end goal. Similarly, physical appearance serves the spiritual purpose intended for the soul, as in the case of the matriarchs who were beautiful and humble, and by concealing their beauty, they achieved great spiritual success.
The Torah does not mention external beauty without purpose. For example, the beauty of Joseph is highlighted only due to the great challenge he faced in Egypt.

Wealth and physical appearance are external tools that come with trials and challenges, meant to fulfill the role assigned to certain souls in this world. Other souls have different roles and were given different tools according to their spiritual purpose.
The Torah always emphasizes the inner self, which is paramount. Consistently in the Tanach, we see how Hashem elevates those most humble, even if they were not initially important or prominent. Jacob, our forefather, was chosen to continue the lineage of Israel despite not being the firstborn; Saul was considered insignificant in his tribe and in Israel, yet his great humility was revealed at his coronation: "Saul replied, 'Am I not a Benjamite, from the smallest tribe of Israel, and is not my clan the least of all the clans of the tribe of Benjamin? Why then do you say such a thing to me?'" (1 Samuel 9:21).
Similarly, King David was considered the least and least respected, so much so that his father Jesse did not even mention him to the prophet Samuel when seeking to anoint a king. Initially, the prophet Samuel thought he needed to anoint Eliab, but God told him, "The Lord said to Samuel, 'Do not consider his appearance or his height, for I have rejected him. The Lord does not look at the things people look at. People look at the outward appearance, but the Lord looks at the heart'" (1 Samuel 16:7), and David was anointed as the king of Israel because his heart was pure before Hashem.
No one thought in their times that Saul and David would become kings of Israel. But Hashem saw their righteous hearts, and because of their humility, chose them. For people look at the outward appearance, but Hashem looks at the heart.

Nevertheless, ugliness is undoubtedly an ordeal, and sometimes the reason for this challenge lies in the rectification of actions from previous reincarnations and specific sins that require atonement. I read in the teachings of reincarnation that there are cases of people who were very beautiful and took pride in their physical beauty or mocked others for their flaws or ugliness. Due to the sin of pride, they return in reincarnation with a similar challenge. However, we do not know the heavenly accounts, as each case is unique. The truth is that every situation and trial we encounter is also meant to improve us and elevate our soul.
It is a fact that there is one great and beautiful advantage to ugliness: it causes people to develop their inner selves greatly and achieve impressive accomplishments they might not have reached if they had relied on outward beauty. Looking at the broader world, we find that many were and are unattractive people who achieved great and impressive success in their fields, who knows if they would have achieved it had they been born beautiful. It may well be that there are more unattractive and intelligent people in our world than beautiful and intelligent ones. When we look at the pictures of the most successful people, Nobel Prize winners, or those who brought about the greatest revolutions in history, we find that for the most part, they were not considered beautiful by society. Because of this, they invested more in other areas, reaching achievements that only a few achieve.

In this context, the Gemara writes that wisdom is naturally preserved in simple and humble vessels (Taanit 7a): "To teach you that as with these three beverages [water, wine, and milk], they are not preserved except in the least of vessels, like pottery, and not in silver and gold vessels where they lose their taste, so too words of Torah are not preserved except in one with a humble disposition."
Meaning, the Gemara explains that one whose exterior is not attractive — or if he humbles himself and does not pride himself on his exterior — can only then merit the wisdom and holiness of Torah. The Gemara continues with the story of the Roman emperor's daughter, who spoke to Rabbi Joshua (who was not physically attractive), and marveled at his great wisdom but was very surprised at his appearance. She said to Rabbi Joshua: "Woe to such beautiful wisdom that is contained in such an ugly vessel!" Rabbi Joshua replied to her: "Where does your father store his finest wine? In ordinary earthenware vessels. Why does he not store the wine in beautiful and important gold and silver vessels?"
Hearing this, the emperor's daughter ordered her servants to transfer all the wine to gold and silver vessels. The wine obviously spoiled, and the emperor approached Rabbi Joshua to ask why he had suggested this to his daughter. Rabbi Joshua explained the matter and said, "As she asked me, so I answered her, to demonstrate that cherished things are best preserved in simpler vessels."

Even an unattractive or disabled person can find joy, discover their great qualities, and thank Hashem for their blessings. The righteous discover the advantage within the disadvantage. And everyone should remember that Hashem looks at the heart.

The Torah teaches us to look at the inner self, not the outer appearance of a person: "Charm is deceptive, and beauty is fleeting; but a woman who fears the Lord is to be praised" (Proverbs 31:30). See an article I wrote on beauty and ugliness.

Every advantage and disadvantage comes with its own trials and challenges. Joseph was a great tzadik, withstood enormous tests, but despite his high spiritual level, it is said that he errored when styling his hair for beauty.
It is known that wealth comes with the trial of pride, greed, and pursuit of luxuries; physical beauty brings similar trials, but more than anything — a great danger of spiritual corruption, of the kind capable of dragging men and women to moral lows. With this challenge come suffering: just as the wealthy bound to their wealth suffer from jealousy of greater wealth, chasing after more significant luxuries, and as they approach the day of death, understanding that nothing of their riches will be taken to the next world, so too, beautiful people reliant on their physical beauty often suffer greatly in their pursuit of physical perfection, in the intense regimes they impose on themselves, in the painful surgeries and treatments that take days and nights, and despite all these, they find that in aging and old age their beauty is taken from them, year after year, piece by piece, as they desperately try to stop the clock, chasing a fading past until nothing remains.

Hashem gives each person their trials. Just as the wealthy have trials, so too do the poor. And just as the unattractive person has trials, so does the particularly beautiful one. In summary, everyone has their own private account in the heavens, with unique roles for which they came to the world. Please read the article.

I recommend the lectures of Rabbi Yigal Cohen, who often speaks on the merit of joy and the correct way of dealing with various situations in faith:   Regarding your second question — it is certainly forbidden to call a person ugly. As the Torah commands: "And you shall love your neighbor as yourself" (Leviticus 19:18), and the sages said: "Anyone who humiliates their friend in public is as though they shed blood" (Bava Metzia 58b).
The Gemara tells a story about Rabbi Shimon who mentioned someone's ugliness inadvertently, and that person replied: "Go say to the craftsman who made me — how ugly is this vessel you made!" The Gemara narrates: "When Rabbi Shimon realized he had erred, he descended from the donkey and prostrated before him, saying: I have wronged you, forgive me" (Taanit 20). Only after Rabbi Shimon's students pleaded with the man to forgive Rabbi Shimon, did he agree to do so.

It should be noted that in observant communities, there is great care taken to avoid hurting the feelings of an unattractive or disabled person. Children are taught not to label another child in class as "ugly" or "fat" or similar names, with particular caution in this regard.

If you are asking about matchmaking contexts, when the question is for a purpose, guidance from rabbis and rebbetzins should be sought on how to properly respond. It is customary not to use the word "ugly" but to respond generally, allowing the other side to understand, and of course emphasizing positive traits.
In matchmaking contexts, even unattractive people, if they learn how to groom themselves, maintain good hygiene, have neat haircuts, take care of their teeth, dress in clean and nice attire — they are generally considered pleasant or at least average-looking to others. Each person should make the proper effort as guided.

The principle holds that externally, a person should aspire only to moderation. In spirituality, one should always aspire to the peak. Good luck.