I am on level 68 and have a level 68 Gven Nel master sword equipped.
It has +31 armor piercing with only one runestone slot.

In my inventory is a Addan Deith relic level 63 sword, 5 levels lower and dmg 40 lower, but has +6% aard intensity,
+6% axii intensity, +16% critical hit damage bonus, +2% critical hit chance, +50% attack power versus vampires,
+1% chance to freeze and three runestone slots.

So, should I stick with the higher level sword or go for the one with many more features?

The Addan Deith without question. Stick in a Greater Svarog runestone and you get your +30 armour piercing back. Stick in two other runestones of your choice, eg. 2 Greater Chernbogs for 10% attack power, and you have a far superior sword.

I see. So a higher level sword or armor does not necessary make it better?
If facing a level 68 opponent you feel the level 63 sword in this case would be an better/easier option
than the level 68 sword. Just something I have often wondered about without experimenting with different level swords..

Yes, but there are limits. There comes a point -- not easy to place exactly where -- when damage matters. Note that level means nothing in itself, only what the sword is capable of.

I see what you mean. A level 10 sword might appear to have better features than a level 68 sword but it would still not be comparable.