So, under the "treasures" part where you find the challenges, I found "bonus play" and I seem to have unlocked the potato costume but can't figure out how to use it. Do I need to beat the game on God mode first? Or beat all the challenges? What am I missing!? I wanna see Kratos as a potato!!!

You can only use costumes if you play the game on the same difficulty level you cleared the game on.

For instance if you beat the game on Normal and you start a new normal game you can pick a costume, start a new game + or start a new game from scratch.

You are unable to use costumes on a difficulty you have yet to beat.

Bonus play is only availible to leveles you have beaten, and all the levels under it.
If you beat the game on the Hero (Normal), you would have bonus play for Mortal (Easy) and Hero (Normal).
But if you beat the game on God (Hardest), you will unlock bonus play for all difficulties.

So begin a new game as Mortal (Easy) and then it'll say something about Bonus Play.
It'll ask whether or not you want to begin the game with your old stats.
It'll leave you with the same health, magic, weapons, items, and magic powers you were left off with in the previous game.
Then it'll give you a choice of costumes to use.
Select the costume of your choice (that you unlocked).

The Spud of War (Potato Kratos) gives you infinite magic.

you look kind of like a cow and potato mix.