What can you do with them? Can they do the same as every other NPC kind if they have the right skills (take the place of a Worker NPC or a Captial Ship Pilot NPC) or do they just sit around looking nice with a few skill points to there names?

The latter, ie, they sit around looking nice for RP purposes.

Will they ever do anything in game wise?

Not really. They used to have a scripting menu so you could give them little conversation options, but that was on the fritz awhile ago, not sure if it's fixed.

At one time, you could choose the race and gender of NPCs you were hiring, along with their names. It's been suggested that you be able to do so for Custom NPCs so as to make them actually RPable, but that's not been a restored option. :(

What my I really want to know is can a custom npc work? Can they put their skills to use?

No. A custom-type NPC cannot build, recycle, produce, brawl, or heal. It can look pretty.

No. The only skill that really would work is stealth which just prevents anyone with a poor enough perception from seeing them. Otherwise there is nothing in the near future, if at all, that will allow them to do anything other than look pretty.