If you re-make the faction with the same name, it actually replaces the old one with the new.
And if you use a different race, and have made any custom units for the first race, you'll have access to units of both races with your new faction of the same name. Lather, rinse and repeat to create a faction with access to units of every race.
If you don't turn off Steam Cloud, all of your deleted files will be added back to your game, so deleting them only works if you do not use Steam Cloud.
This really needs to be fixed, but I've begun to wonder if that's possible.