Do NPC's base your appearance off of the portrait, or can you write in your own description somewhere? Is it possible to upload your own portraits?
They're based off of descriptions. I've been thinking about having a system for adding custom player characters, so I might add that with the next update.
Especially Aldric, he'll often make up items, say he's put them in my inventory
That's called a "hallucination" and it's an unsolved problem with current LLM technology. Unless the NPC is opening the trade menu for you or straight up gifting you an item, which they can do (but sometimes fail to do), they're hallucinating and making things up.