1)you start smithing and a unique weapon is created renadomly by the game depending on which ore(s) you use mix,together.
or
2)you start the smithing "mini game" a menu comes up with a list of the ore(s) you have in your inventory and also gives you the ability to mix your ore(s) to create somewhat different weapons that you don't get unless you mix ore's once you've choosen your ore a customization menu comes up given you a randomly generated choice of hilts depending on what ore you use or mix/kind of weapon yor creating possibly giving you a choice of 100's of different hilts and once a hilt is chosen you get a new slider menu allowing you to choose sword size shape colour shape etc.
3)using the controlers thumbstick or mouse you literally get to draw your weapons shape with the game showing you an example of how your weapon will look taiking into consideration what ore(s) you have used.
im looking forward to skyrim so much it soundsdeep with all the options available. job,faction,shouts just everything just hope it doesn't turn out that we have loads of "shallow" choices likemass effect 2 fable etc.