During human motor skill training and physical rehabilitation, there is an inherent trade-off between task difficulty and user performance. Characterizing this trade-off is crucial for evaluating user performance, designing assist-as-needed (AAN) protocols, and assessing the efficacy of training protocols. In this study, we propose a novel human-in-the-loop (HiL) Pareto optimization approach to characterize the trade-off between task performance and the perceived challenge level of motor learning or rehabilitation tasks. We adapt Bayesian multi-criteria optimization to systematically and efficiently perform HiL Pareto characterizations. Our HiL optimization employs a hybrid model that measures performance with a quantitative metric, while the perceived challenge level is captured with a qualitative metric. We demonstrate the feasibility of the proposed HiL Pareto characterization through a user study. Furthermore, we present the utility of the framework through three use cases in the context of a manual skill training task with haptic feedback. First, we demonstrate how the characterized trade-off can be used to design a sample AAN training protocol for a motor learning task and to evaluate the group-level efficacy of the proposed AAN protocol relative to a baseline adaptive assistance protocol. Second, we demonstrate that individual-level comparisons of the trade-offs characterized before and after the training session enable fair evaluation of training progress under different assistance levels. This evaluation method is more general than standard performance evaluations, as it can provide insights even when users cannot perform the task without assistance. Third, we show that the characterized trade-offs also enable fair performance comparisons among different users, as they capture the best possible performance of each user under all feasible assistance levels.