The purpose of this faction seems to be to make sure all creatures on the planes of Oblivion friendly to each other. Additionally, creatures in this faction are immune from Mehrunes Razor.
This faction contains the daedra found around the gate in the Attack on Fort Sutch quest. It stops such creatures attacking each other or wasting their time attacking minor wildlife. It also played a similar role in the demo shown at E3. Summoned Golden Saints and Dark Seducers from Shivering Isles are also inexplicably in this faction, causing them to exhibit the "I HAVE NO GREETING" error and have no combat or hit sounds whether you summon them in the Isles or Tamriel.
Contains the two knights encountered during the quest The Wayward Knight and ensures they get on well with the player. The player is added to this faction at stage 60 of the quest and never removed afterwards.
Contains the members of the Odiil Family and gives them access to Odiil Farm and the house in Chorrol. It also stops them from telling rumors about the sons leaving home.
Identifies Olav as the owner of Olav's Tap and Tack. Since this could have been done without the use of a faction, it is not clear why this was created.
This faction seems merely to enforce a dislike between Ontus and the Mages Guild. This is likely a bug, as Ontus himself is a retired member of the guild, and was probably meant to like its members more.
Membership of this faction is bestowed upon the player by High Chancellor Ocato as reward for completing the Main Quest. Apart from adding an icon to the player's journal, the faction is mainly used to grant access to the Imperial Armory.
The player can join this faction by completing the quest of the same name. It causes its members to dislike vampires even more than usual, and grants them access to Seridur's house in the Imperial City.