I have heard custom ROMs before, but I do not know what that's supposed to mean in contrast to Android itself, the physical hardware, or the stored-software it's comprised of.

I know that a ROM is essentially firmware, but in some contexts it can be also understood as a ROM image.

So what does "custom ROM" mean within Android? A customized bootloader or source?

Also, what would be the point of customizing it if it was a firmware image?