Almost all NPCs and Creatures belong to one or more factions. These faction memberships control the dispositions of all NPCs and creatures, both towards the player and towards each other. In addition, NPC dialogues can be determined by faction memberships, as can some game scripts.
For more information, see the Oblivion page on Factions.
A full list of all factions (including those not available to the player), along with their members and interrelationships, can be found at the pages below: