Archaeologists like to cry 'talisman' any time we find something that isn't easily explained in other terms. So treat these kinds of claims with healthy skepticism, unless the person identifying an object as a magical charm has a more detailed argument to justify the claim.

That said, medieval Europe was certainly a very magic-filled place. Humans follow rituals, and just as we justify our rituals today by (for the most part) scientific rationales (wash your hands for the count of 20, or the length of a song, and you will be protected from invisible germs that a specialist told you will make you sick), medieval people lived their lives with rituals (to make the crops grow, keep the animals healthy, prevent the beer from turning sour) that they explained in terms of magic, demons, or the intervention of Christian saints.

'Magical' practices show up in all kinds of sources and contexts. Some of these were identified as magical by medieval people (for example, the Lacnunga, a tenth-century book of charms for various agricultural troubles and physical ailments). Others were considered a normal part of religious life (like eating dust from a saint's tomb to heal an ailment, or praying near a saint's shrine to increase the odds of being listened to), but look a lot like magic from a modern perspective. Some things (like blacksmithing) were probably considered magic to medieval people, but look like technology from our perspective.

Valery Flint's study of early medieval magic is not without issues, but is probably one of the better starting places if you want to read more. K Jolly's Elf Charms in Context is a good attempt to pin down exactly what magic meant to ordinary people in the middle of the middle ages in England.

I have about five books on witchcraft sitting next to me, cause I happen to be writing an article about a related topic--I'll list them at the end (they mostly focus on Italy, but what I'll say goes for the rest of Europe too).

Long story short, in the medieval and Renaissance period, you have two main types of magic: learned magic and folk magic.

Learned magic was a scholarly pursuit favored by eccentric intellectuals. It revolved around magic spells and esoteric knowledge gleaned from occult texts. Most spells involved conjuring a certain type of demon to serve a particular task. This type of magic was closely tied to alchemy and astrology, which at the time were still considered hard sciences, but demonology was a fringe branch that most people gave little credence too.

Folk magic, on the other hand, was extremely common in that period--I'm talking about witches. Yes, they existed, inasmuch as there were women (and some men) who claimed the ability to perform certain supernatural services, and did so for a fee. Here, we have three main services: love spells, healing spells (witchdoctoring), and curses. Love spells ranged from simple aphrodisiacs ("My husband doesn't pay me any attention in the bedroom"), which may have been quite effective, to spells to make someone love you, which were mostly bullshit. The former typically involved potions or powders slipped into someone's food, while the latter might involve talismans or effigies similar to voodoo. Healing spells might demand certain objects, but mostly required the extracts of plants with known medicinal properties (modern aspirin is a synthesized version of willow bark extract), with a lot of help from the placebo effect. Curses were by far the most popular service, far outstripping the other two in demand. These definitely required objects like amulets and talismans. A common process involved cursing a certain item and then hiding it in the victims house or bedroom. Many accounts of exorcisms (and there are so many) report that hauntings ceased after some mysterious object was discovered in the crawlspace and destroyed.

So TL;DR--Yes, magic was commonly practiced in the Middle Ages, but, like homeopathy and psychic mediums today, was primarily a scam designed to con rubes out of their money. Magical items featured prominently in folk witchcraft, and hopefully an archaeologist worth her salt would be able to distinguished between an amulet used for spellcraft and a simple item of jewelry.

Sources:

Franco Mormando, The Preacher's Demons: Bernardino of Siena and the Social Underworld of Early Renaissance Italy (1999)

Armando Maggi, In the Company of Demons: Unnatural beings, love, and identity in the Italian Renaissance (2006)

Alain Boureau, Satan the Heretic: The birth of demonology in the medieval world (2006)

Matteo Duni, Under the Devil's Spell: Witches, Sorcerers, and the Inquisition in Renaissance Italy (2007)

Johann Weyer, De praestigiis daemonum (1577)

Everyone seems to have answered the question before I got here, but I have another book suggestion along with those already given, it's another Richard Kieckhefer's book, Forbidden Rites: A Necromancer's Manual of the Fifteenth Century. There is also the Magic in History series, which this book is part of, done by Penn State.