<InternalName> is how you reference the object defined in this code block in other xml files.

<DisplayName> is a string reference - the game looks at the text files, locates this, and then prints whatever string is attached there.

<Description> is another string reference and operates the same way.

<PersonalityTraits> refer to the various AI personality types. Different AI personalities react differently in diplo, and can have different scripted behaviour.

<RaceTraits> go from 1 (highest bonus) to 4 (worst penalty).

<ShipCallsign> is another string ref.

<WarEnduranceInit> is a hidden stat which determines how long an AI will hold out for. Various actions in war increase or decrease war endurance. The higher this number is, the longer the AI will hold out. I don't think there's any upper limit.

<DefaultResistance> is the basic resistance; again there's no hard limit, but keeping it below 1 is a good idea.

<InfluenceTallyInit> is starting inf. This can again be however big as you like, but obviously it will impact your borders so making it too big is just silly.

<StartingColonyPopulation> is the starting population, and yet again there's no real limit - but population will die if there's no food for them.

The things at the bottom (in the AI category Weight scope) are tech weights. They're a weight table. They only have value in relation to each other. Since most of the techs and strategies are based around 25ish (though there's numerous examples of anything upto 100),  good range to keep it in is 0-25, unless you want to re-write the whole AI tech selection system (which I've done, and it's very tedious).

It's the internal name of a string. A string is words that will be printed on screen. So in the case of FACTION_TERRAN_Name, there's a text file which contains something like this:

I've no idea if you can alter them, though I'd doubt it. In-game factions are created as .faction files, which aren't xml. You'll be able to copy and edit them, though.

If you're just looking to make a faction, then doing it via the in-game eidtor is much easier than using the xml - it's one of the few tools we have. You can do almost all the same stuff, aside from changing the population and starting cash.

The in-game faction editor does not write any XML files that are readily visible to the user; if any are written, they are buried inside a *.faction file that no one has yet figured out how to edit, at least to the best of my knowledge. If you want to be able to edit a custom faction without resorting to the in-game faction editor, then you are going to have to create the custom faction without the aid of the in-game editor. It is therefore unlikely that you will be able to create a faction using the in-game editor and then mod whatever aspects you wish to change later, unless you can figure out how to edit a *.faction file without using the in-game editor (in which case, good work; as far as I know, you'd be the first to do so outside of Stardock).

As far as what the default values are, my guess is that FACTION_DEFAULT, defined in FactionDefs.XML, is the template used for custom factions if you don't copy another faction. I am not sure that this is the case, however, and I don't know whether the *.faction file simply stores a set of modifiers to apply to the template or if the *.faction file stores a modified copy of the template or something else.

If you successfully create a proper ship style set, it should show up in game as a selectable ship style. There should not be any issues with creating a custom faction using the in-game faction editor that uses that ship style, unless perhaps you get rid of the ship style without getting rid of the custom faction and then try to start a new game as that custom faction.