The xml files produced when you create a race are in Documents\My Games\GC3Crusade\Factions, with custom citizen names and portraits in Factions\FlavorText

If you don't have Crusade, it's My Games\GalCiv3\Factions

Is that the name of the faction you created?  The .faction files are the custom race xml files encoded in some way.  I think some other people here have figured out how to decode them, but I don't know how.

..../steamapps/common/Galactic Civilizations III/DLC/EXP2_Crusade/English/Text contains stock faction flavor text files.  FlavorText.xml has the Diplomacy text for all stock factions all mushed together.

If you use the Civilization text editor, it will create a custom faction FlavorText file that you can edit.  I have mine set to throw the file into notepad++ and save it as a text file.  This will throw your faction identifier into all the right places.  Change it to .xml when I think it is ready.  If you want to change a flavor text file from one faction to another, do a mass Replace Text with the old and new faction identifiers, which happen to be the names of the faction files in your Games folder.  It seems to work pretty clean.  Copy things to your mods folder and have fun.  I am teaching my test faction gobbledygook for practice.  Then I will try some story telling.  That will take understanding the schema files.  Wish me luck.  I am in way over my head here.