How to decide between using a custom Relationship and using a custom Contact Reference field?
In my experience, I default toward relationships, but might use a custom reference field in these situations:


I need to export multiple people with the same relationship.  For instance, if Andy and Beth both have a "Mentor of" relationship to Johnny, you can't export Johnny's record showing both mentors.  So I'll make two contact reference fields.
You need to create a form where a site visitor needs to specify an existing contact.  For instance, if new members must be referred by existing members, you may want them to be able to submit a profile that indicates who the referring member is.  If you use Webform-CiviCRM Integration, I think you can do this with a relationship, but otherwise, you need a contact reference field.