It strikes me that there is some relation here to Lots of Shit Going On. And independent not adversarial.
Stabbing monsters is one of the most boring parts of role playing. You know what's more fun? Getting to know the monsters and then stabbing them.
Factions help increase interactivity in an adventure. They help with emergent gameplay by providing roleplaying and interactivity beyond combat. Factions imply that a group exists with some sort of goals and motivations, especially in contrast to another group they are working against. These now means that instead of "stab the orcs" there now exist the orcs, who want the the goblins stabbed, and, implicitly, the goblins who want the orcs stabbed. And the sub-chief of the orcs who really thinks it about time he were chief. And the shamen who wants a leadership change but not the chaos that comes with it. This open up roleplaying opportunities with all groups. Lying to all. Conniving. Scheming. All of which offer further springboards to adventure through emergent gameplay, gameplay which seldom exists in a game that only features interactivity as combat.
Note the similarity to independent and not adversarial gameplay. While combat, initiated by the creatures or the party, is always a possibility, the party now has the possibility to leverage the factions groups as a resource to accomplish their goals. And the creatures likewise have the opportunity to leverage the party as a resource (figuratively, one hopes ...) to achieve their goals. Thus a more complex and dynamic environment is created, one with interactivity beyond the simple rolling of dice to resolve combat. Combat can always be included, and come later, but talking to them first and playing politics is more fun.