To follow up with Vicky, I think that most of the offerings from the Wedding Favor Industry are tacky pieces of junk. See the engagement ring key chain favor. I'm not making this up. It's a "real key chain" that "features an enormous faux diamond." Is this seriously what you want your wedding budget to go toward? (Last time I checked, this item was on backorder, which means people are actually buying it, and want to buy more! C'mon!)
Like at any party, appropriate favors at the wedding reception can add to the festivities. Little boxes of candies or chocolates or other snack items are usually welcome by everyone. Fun favors can be a part of the overall theme of the party. One wedding I went to was a 1930s themed costume party, and the favors were masks like what might have been worn at a costume party in the 1930s. The guests had a good time playing with their masks. Favors can be part of the table decor. I'd like to make some little doo-dad from the same dried flowers that will be used in our centerpieces. People may take them home as a keepsake or not, but at least they'll look nice on the table, and that's what's important to me. I love the idea of small potted plants for an eco-friendly reception but they would not be easy for out-of-town guests to transport home, so take your guests into consideration when deciding on favors. (I once took an entire live-plant centerpiece home from a wedding and replanted it in my garden--once the bride gave the go-ahead for people to take them home. I no longer have a garden, so have no use unfortunately for live-plant favors or centerpieces myself.)
Think long and hard about personalized favors. They may be important to you, but what about the frequent wedding guest who has a cupboard full of mismatched wine glasses, shot glasses, votive holders, and coasters with other peoples' names on them? Those get put away to collect dust, and then eventually thrown out. If you must personalize something, invest in personalized ribbon or paper for wrapping the favors in.
As someone who loves planning parties, I love the idea of the right favor. But as Vicky said, they are not going to make or break the wedding, so think about them carefully. Especially if you are on a tight budget, where do you really want that money going?