These words both refer to large groups of people, in different ways. Populous is an adjective and populace, a noun.
Populous means “having a large population”—large for the area. For example, Siberia may have several million residents but it is not populous, because it is a large area. Hong Kong, however, is very populous! Populous and crowded have almost the same meaning, except that populous has no negative connotations and describes the number of people who live in a place.
A populace simply refers to the group of people living in a particular place. In fact, one could grammatically refer to a populous populace! This means “a large population.” Populace is similar to population, except that population can refer to the number of people, while populace refers to a group:
What is the population/*populace of Hong Kong. (the number).
The population/populace of Hong Kong is very well educated. (the group)
Although populace cannot be used like population in the first sentence, they can both be used in the second sentence.