When to Create Custom Object and LIST Type Custom Setting ?

In some ways, List-type Custom Settings are very similar to Custom Objects. In fact, if you use a tool like the Data Loader to view a list of objects in your org, you’ll see that Custom Settings are listed together with Custom Objects, without any visible distinction between the two.

In Custom objects you can create validation rules , triggers , workflows , page-layout and record type whereas not in custom setting.

Custom Settings are used to Avoiding Governor Limits

Depending on how your Apex code interacts with Custom Settings, they can have zero impact on certain governor limits. That’s right – you can retrieve all of the values in a Custom Setting with absolutely no impact on the governor’s count of the number of queries you’ve performed or the number of rows you’ve retrieved.  This makes Custom Settings particularly useful for reference data, like lists of Postal Code / State mappings.