They are not Arenas, as no actual PvP combat takes place, although they make use of the same maps as those that are used in the PvP arena system. However, Balthazar faction is still earned from the fights, though there is a cap to how much can be earned in one day from fighting Challenges, as opposed to no cap when fighting real PvP against other human players.
Challenges have a distinct icon on the game map. At a glance it looks like a mission icon, but the emblem on the shield is different.
Currently there are only two challenges in the game, although more may be added later: