Most line items are products, but line items can be different types, e.g. coupons, discounts, shipping, tax, etc.

Line item types must first be defined with hook_commerce_line_item_type_info(), e.g.:

To create another product line item type (for instance, if you need to add additional fields that will be available on the Add to Cart form), use the following to essentially duplicate the default line item type and then build off of it.

/**
 * Implements hook_commerce_line_item_type_info().
 */

function custom_type_commerce_line_item_type_info() {
	return array(
		'custom_type' => array(
			'name' => t('Custom Type'),
			'product' => TRUE,
			'description' => t('References a product.'),
			'add_form_submit_value' => t('Custom Text'),
			'base' => 'commerce_product_line_item',
		),
	);
}

To implement a completely custom line item type that will not reference a product type, use something like below. This can be used for things like coupons, shipping, etc. Anything you want to add to an order that will affect its total.

/**
 * Implements hook_commerce_line_item_type_info().
 */
function custom_type_commerce_line_item_type_info() {

  $line_item_types = array();

  $line_item_types['custom_type'] = array(
    'name' => t('A custom type'),
    'description' => t('This custom type is for custom line items.'),
    'product' => FALSE,
    'base' => 'custom_type',
  );
  
  return $line_item_types;

}

If you are implementing a product line item type, in hook_enable, it is necessary to tell commerce_line_item that standard fields (e.g. price) must be added to the new type:

/**
 * Implements hook_enable().
 */
function custom_type_enable() {

  commerce_product_line_item_configuration(array('type'=>'custom_type'));

}

If you are creating a custom line item type that does not use commerce_product_line_item as it's base, you instead need to do the following. This adds standard fields such as commerce_unit_price, and commerce_total.

/**
 * Implements hook_enable().
 */
function custom_type_enable() {

     commerce_line_item_configure_line_item_fields(array('custom_type'));

}

Note that the parameter to that function is an array of module names to check for custom line items, so just pass in the name of your module, not the type of the line item you created, unless they happen to be the same (as they are in this sample).