@Pigeon- The abundance part of your comment is not logical to me. I expect each item to only be in the world one time but I agree on the quality (I touched on that with the difficulty level comments I believe).
By abundance/quality I mean the overall number/average quality of items in the game. Kind of like the "habital planets" slider in galciv, as an example. So you could choose to play a game where items are extremely rare, but chances are if you find one it will be a very powerful one. Or you could play a game where items turn up all over the place, but are usually not very impressive. I didn't mean that we could choose how many of each artifact showed up - there shouldn't be more than one of each.
On the other hand, now that I think about it, it would be interesting if there is a certain class of 'generic' items that needn't be unique.
To answer your question, a relic would be something left over from before the end of the first age and its armageddon. Whereas an artifact would be tied to a specific faction. To further elaborate the relics could be magic school specific or elemental in nature.
Why would artifacts be tied to a faction? Anybody can find an artifact (item?), and most/everybody should be able to use them all, but maybe to greater or lesser extents. If items are tied to specific factions then there would be no point in capturing enemy heroes' items in battle, which would be a real let-down.
I'm still having trouble seeing what sets a relic apart from any other item other than its quality.
I was thinking the custom creation thing could be a bonus feature for the player after he wins say five game, on a given level, with the same faction, the game allows him to create a new artifact for that faction. If the player win the games playing different factions then the game allows him to create relic.
Personally I'm against all unlockable features. I have never played a game where an unlockable feature has added quality to it; they're almost always used as a cop-out for actually making the game replayable.