In the past, faction had major consequences. A 'bad' race would get killed on sight when trying to enter a good town. That had to be dialed back a bit for development, as for some time now there has only been one starter town LoL. VR says they are still committed to faction having significant ramifications when the world is big enough to allow sufficient 'elbow room'. We were told that at release, a player will have to carefully find an approachable npc on the outskirts of a major city and do some quests for them to gain faction before entering that city if they don't to be KoS to various guards and citizens.
There is also regular mention of faction having a big role for Crafters. As in, various specialty recipes for gear, food, etc. will only be achievable after gaining enough faction. And gaining it will make other specialty recipes unavailable from opposing factions.
At present, just a few vendors in the starting city will respond to faction. None are hostile, but if you gain enough faction with them they reach a point where various items become available that you never saw until that point. Currently that's mostly in regards to Crafting.