what is a "kitbash"?
 To take pieces from several kits/figures and create an entirely different item. a superficial surface modification of an existing item from it's original design. [adapted via]
this is my humble kitbash-example:
by utilizing various clothes and accessories, i've converted both the DML-Initial-D and Lain figures into "someone" else. no other physical surface enhancements were utilized.
and what determines a "custom"?
 the modification of an existing physical form, be it sculptural enhancement or removing existing parts and replacing with others, to create an entirely different item.
 surface modification includes: facial sculpting and/or enhanced facial paintwork, re-rooting of hair, body paintwork and (additional) tattoos.
 other customization include: sewing and production of 1/6th clothes, scratch-made shoes and accessories.
this is my own (simple) version of a "custom" (for a custom-figure competition, circa 2002):
painted-on tattoos and clothes. that is a sophisticated as i have gotten all these while. (there are other WIPs and will be revealed when tis time :p)
and these are some current prime examples of hardcore customization of the 1/6th:
Anti-Personnel's Death Angel and Death Rider:
and CalvinLo's Snake Poison (origins here):
(copyright of images and concept remains with owners of the images)
or of the many indisputable customs (and some kitbashes) @ the ActionMan 4040-show :)
the line is murky, yes ~ and many toe that line between disciplines and conventions. some do just facial paintwork and claim it to be a custom (which is not wrong) and some might cut a pair of long pants into shorts and call it a custom (which is "technically" not wrong either) = at the end of the day, tis the physical alteration of an existing figure and the level of effort and complexity that goes into it, that defines it either as a *kitbash* or a *custom*, IMHO :)
i am primarily a kitbasher (when it comes to 1/6th figures). always have been. always claimed to be. i had attempted "customs" in the past, but more so "surface paintwork" than "physical enhancement" (evident from image-example above) :p
a coupla parting questions (for those who actually "care" about such things :p):
(1) would by buying/procuring a commissioned headsculpt from another artist and putting it unto a figure you bought and dressed-up in kitbashed clothing = make one a "customizer"?
(2) given the hobby-norms, would the usage of PHOTOGRAPHY be given any credit in this division? ie: take a regular picture of a toy out in the great outdoors (instead of in the box) - would it ever be considered a "kitbashed photo"? or would using lighting effects and non-conformist camera-angles to take the figure/toy and producing a different look of said toy, be ever considered a "customized photo"?
i go play with my toys now ~ *heh*