Why doesn't my friend just say he's from Russia?

Even though Dagestan is part of Russia, it's culturally very different from it. If someone tells you that he/she is from Russia, you probably have a small explosion of Russia-related stereotypes in your head (vodka-matryoshka sort of thing) - well, that image has nothing to do with Dagestan which is traditionally muslim and people there look different and even speak a different language (and some of whom probably don't want to be part of Russia). Basically if your Dagestani friend introduces himself as Russian, that might create more confusion later on.

Because Dagestan is a different country from Russia. It would be like someone from Scotland saying they are from England.

Because he is from Dagestan

people in dagestan and chechenya want their own independent country which is why I think he is saying so

Because people are prejudiced against Russians due to their ignorance about the country and its diversity.

Because he's Dagestan, idiot.