They are saved (for when you play that faction again).

Plus, the AI will use them against you if you play against your custom faction.   

I am on the other side of this. I made various custom races that i want to delete. I go like i did on FE and delete them from documents\legendary heroes\Races but after i delete them and start a new game the races re-appear both in game and after i close the game back in the folder from which i deleted them already. Is that a bug?

If it's not a bug, it's a feature that needs fixing. It's been brought up here several times, but I've never seen any official response. One workaround is to turn off Steam Cloud, but the created units will reappear if you turn it back on.

Stardock, we really need a way to permanently delete our custom factions, units and sovereigns.

Not to mention the ability to edit our factions and units after they have been created in the first place. Its exremely annoying when you just want to make a small tweek to your faction or unit but can't without editing the actual game files.                          

I like to keep all my custom factions in the game and i just recently played a game with dozens of opponents. Pretty funny and action packed.

Edit: Brewskin. That's actually something I would call an exploit.

Technically you could make a unit for everything with any racial bonusses that you would wish.

So yeah.

Well that's correct of course, but its still not really the problem here. I mean sure its all good ot have this "feature", but:

I mean if there was a way to delete the custom races entirely from within the game it would be easy to just delete a race before overwriting it. That would "fix" this "feature" and also take care of everybody wanting such a delete button.

Sure this is minor, but isn't every UI kind of like that? A good game is expected to have a good user interaction and the interface and its possibilities are part of that.

At the very least, I hate going into the units directory and finding ALL the units I've made in the same spot. Why can't they be in subdirectories, arranged by the faction that they play for ???

It would make for a much easier time to sort through and delete the ones you don't want or don't want the AI to play with...