*Following a battle in which the cat player lost buildings, does he/she return the sawmill and workshop tokens to his/her player board or are they removed from the game?
Returned to their board. Pieces are only removed from the game when explicitly stated (such as the cats' Keep).
*Is a faction limited to the number of items that will fit in the 'Crafted Items' box on their player board? (In the case of the cats or birds, it looks as if the box will hold 3 or 4 individual item chits). Can one faction have more than one of the same item (two boots for example).
There's no limit on the number of items a faction can craft, except the finite number available to be crafted.
*In one turn, can the cats craft as many times as they want (assuming they can pay for the crafts)?
Correct. So long as you have crafting buildings to use (each can only be used once per turn), you may craft as many items as you wish.
I assume that (in the 2-player game above), the crafted items are useless (no vagabond).
Yes, the items themselves have no use. But you still score the points for crafting them, and they are still limited by the number of items available to be crafted.