Creating indexes on relationship properties or types can significantly improve query performance in Neo4j by reducing scanning across the entire database. These indexes enable quick lookup of relationships and their properties, enabling more complex queries to be executed in less time. Indexes are created using the `CREATE INDEX` command and can be used with compound indices for multiple properties. To troubleshoot the effectiveness of an index, EXPLAIN and PROFILE commands can be used, which provide execution plans and runtime performance metrics. By creating indexes on relationship properties or types, users can reduce database storage demands and improve query performance.