Hi Amana,
welcome to FE modding 
There are quite a few stickys in this forum with introductory materials.
But first, let's get you set up:
Mods go into your "Documents > My Games > LegendaryHeroes > Mods" directory (assuming you are using LH of course). If you want to create a new mod, just create a new folder with the mod's name in there. Basic mods usually consist of only .XML files that change or add content.
Now that you have your own folder, you want to fill it with content. The easiest way I have found to do things like that is to copy. Grab yourself a preexisting mod and check out what it does. Then apply it for yourself in the way you want to. Since this game itself is basically a mod of its own basic engine, you can check out the game files and look at what the devs themselves did. Check out the "Data > English" folder in your game installation directory. LOTS of .XML files. Those contain most of what you'll find in the game. Don't mess with those unless you have to, and if you do: Make a backup. BUT you can look and take notes.
Oh, btw, reading xml files in notepad is a bit painful, isn't it? If you don't have it yet, get yourself a copy of Notepad++ (it's freeeware), which makes editing xml a lot less painfull.
For example there's a file called "CoreRaceConfigs.xml". Funny content, right? This is where you need to apply changes if you want to modify factions. Please note that there is a difference between heroes, factions and races: A hero has only one faction, but a faction can have multiple heroes. A faction can only have one race, but there may be multiple factions sharing a race. All three together make up the boni and mali you receive during gameplay. Race usually only affects your units by giving them a racial perk. Faction boni usually have a global effect (Like giving access to unique gear, spell or buildings) and Hero perks are the stuff your hero is made from. Most of that is hero local.
Be sure you know what you want to change, then do it.
Btw, given the way this game works, it is a lot easier to add something than it is to remove it, using a mod. For example, it's trivial to add a perk to a faction with a few lines in a mod, but removing one may require you to edit the main files *ugh* (If I'm wrong on this count, someone please tell me how to do this).
Finally: On how to test/run mods
Be sure you have the options "Use Mods" enabled in the game (you will need to restart it). The current set of game data is stored in the savegame of a file and will be reloaded. What this means is that changing a mod will not affect savegames. If you want to test a change in your mod, you will always need to start a new game. It's possible to enable cheats in this game, which can help with testing mods. Or you can build your own test suite in the form of specific spells - I did this since those suit my needs better, but it's more of an effort.
Cheers,
Fred
