Here's the scoop...
Zytel, as was pointed out, is a trade name for the material commonly known as FRN, which stands for "fiber reinforced nylon". Nylon itself is extremely resilient and tough, but somewhat soft. FRN has fibers (usually glass) mixed in while the nylon is in a liquid state; when cooled and hardened, the fibers are aligned randomly throughout the nylon matrix, adding significant stiffness.
G-10 is made very differently: woven fiberglas fabric is stacked in layers, saturated in a liquid phenolic, and baked under pressure until the phenolic is hard like old-fashioned bakelite. The idea is similar to FRN, but the roles are sorta reversed: the phenolic matrix is stiff but brittle, and the woven fiber provides toughness.
The other main difference is in strength. FRN has fibers that are arranged randomly throughout the material, so it's about as strong in all directions. (Actually, the fibers often align somewhat with the "flow" of FRN as it's injected into the mold, but not enough to change it's properties significantly.) G-10, on the other hand, has nearly all of its fibers running parallel to the surface, making it significantly stronger in an application such as a knife scale. However, strength testing on real-work knives show that both materials are plenty strong enough for making a knife handle; even an FRN handle with no liners will withstand stresses that will shear pivot pins, locking mechanisms or blade tangs!
FRN is popular on low-end knives because it can be injection molded into just about any shape you can build a mold for, including any sort of surface texture you like. It's also economical in mass production: once the tooling is made, FRN knife handles can be cranked out quickly, for little more than the cost of the material, and require little or no fitting or finishing after molding.
G-10 is made in sheets of slabs, and must be cut and machined to shape. This significantly limits the range of shapes that can be manufactured. (Example: Chase Axin (chaxknives.com) tried making machined G-10 replacements for the molded scales of the Benchmade Griptilian, but found that it was extremely difficult, extremely time-consuming, and hence not cost-effective, even for a custom maker such as himself.) There are some knives that use 3D CNC machining to achieve more interesting, less slab-like scales, such as the Benchmade Ares and Kershaw Spec Bump, but that requires expensive tooling and time.
G-10 does lend itself to roughened surface finish, that's nearly ideal for a knife. The process consists of bead-blasting the smooth surface of the G-10, which wears away the relatively brittle phenolic matrix, while leaving the tougher, phenolic-hardened fiberglas fabric raised above the surface. Depending on how much blasting is done, you can get a finish anywhere from a dull sheen, to a soft canvas-like feel, to rough as sandpaper.
