Faction Creator
Kingdom or Empire
If you are going to create a custom faction, the first choice you will face is this one.
Kingdoms are 'good' and can use Life spells, while Empires are 'evil' and can use Death. Both can use the four elemental schools of magic.
This choice also determines the races you can choose from. Furthermore, a few Traits and Research Techs are different depending on allegiance.
Race
Your Race can have a big impact on the 'feel' of the game. Every Race has an active ability, one or more passive ones, and special unit abilities.
Edit: In earlier versions, the Race options were as below. In 1.5, you can pick any Race/alignment combination.
Empire Races
Krax, Mancer, Men, Wraith, Quendar, Trog, Urxen.
Kingdom Races
Krax, Mancer, Men, Wraith, Amarian, Ironeer, Tarthan
Faction Traits
Every Faction has 3 trait points to spend on picks. Optionally, you can select one negative trait to select a fourth positive trait.
Adepts
Start with the Shard Harvesting technology, which allows you to harvest Shards by building Altars, and 40 additional Mana.
Archers
Grants access to a unique set of bows which don’t require metal and have a higher initiative and attack than the bows they replace. Additionally the Ram’s Horn Longbow ignores 50% of the victim’s Defense.
Assassin's Tools
Unlocks the Poison Vial accessory (adds poison damage to attacks), the Skath Claw (a sword with high initiative) and Scimitar (a sword with Backswing).
Betrayers
You can recruit Empire and Kingdom champions and cast the Broken Loyalties spell, which can take control of an enemy city. Betrayers costs 2 pick.
Binding
Gain powerful elementals from shard shrines. Life Shards do not produce elementals!
Civics
This faction starts with the Civics technology, which allows them to produce Bell Towers, Inns and Produce Wealth.
Cult of a Hundred Eyes
You can train Widows, Harridans and Hoarder Spiders in your cities.
Death Worship
Grants access to the Infection, Corruption, Graveseal and Dirge of Ceresa spells.
Defensive
City defenders get +10% per city level to Accuracy and Defense. Also unlocks the Bronze Shield and one-handed spears.
Enchanters
Allows building of the Scrying Pool, granting 1 additional Essence. Also unlocks the Sindarian Staff and the Leht Staff.
Flesh Bound Tome
Unlocks the Cull the Weak, Death Lash and Candlecloak spells; and the Scar Stone.
Axe Mastery
Unlocks the Battle Axe and the Great Axe.
Great Hammers
Unlocks the War Club, the Battle Hammer and the Sledge.
Heroic
Completing a quest provides double the normal experience. Costs 2 picks.
Legacy of Serrane
Unlocks the Bazaar city improvement and the Warhorse, which boosts the rider's attack. Your Caravans are immune to attack.
Light Plate
Craft Light Plate instead of Chainmail. Light Plate has slightly higher defense, but lower initiative. Costs 0 picks. You can select one or the other.
Lucky
All units are +25% to Accuracy All units are +25% to Dodge
Master Scouts
Units don’t suffer movement penalties from Forests, Swamps, Hills or Rivers.
Master Smiths
Armor and weapons cost half the production and metal as normal and units can be upgraded for half the normal cost. Unlocks the Golem Shield. This trait costs 2 picks.
Masterwork Chainmail
Craft Masterwork Chainmail instead of Plate Mail armor at the Heavy Armor technology. Masterwork Chainmail has a lower Defense but is lighter and cheaper to craft than Plate Mail. Costs 0 picks
Quick
+10% Initiative
Scholars
Faction starts with the Knowledge technology, which allows to build the Study. The faction gets +10% research.
Slave Lord
Razing a city transfers half that city’s population to your capital. When Men or Fallen are defeated in combat they are transferred as population to your nearest city. Costs 2 picks.
Stealth
Wild monsters are (much) less likely to attack you. 2 Picks
The Decalon
Unlocks Tomes which allow the reader to learn Air, Earth, Fire or Water magic and the Arcane Monolith spell, which allows the player to place outposts with a spell. Costs 2 picks
Tough
Your units have +10% Hit Points.
Wanderlust
Unlocks Quest Maps, Athican Leather Armor, the Fending Blade and the Athican Longsword. These items will still require the researching of technology to utilize.
Warrior Caste
Trained units gain +1 level when trained.
Warriors
Faction starts with the Training technology, allowing them to construct Barracks and train Spearmen.
Negative Traits
No armor
This faction can't craft armor beyond Leather. Champions can still wear any armor they find (if they would be able to normally).
No Ranged Weapons
What the title says. Champions can still use bows they find.
Rebels
+10% Unrest
Uneducated
-10% to Research
Vulnerable to Magic
-20% Spell Resistance. Does apply to your Champions as well.