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.
Not sure if it falls under "lots of shit going on"; that strikes me as more of an Evocative thing - that is, creating interesting/dynamic encounters that evoke creative action.
This is more the sort of thing I like to call "Open-Approach Play", where the party is basically given a situation and it's left up to them how they want to approach it. This spins off tangentially into topics like Jaquayed dungeons, order of battle, and faction play. It's less about being evocative and more about ensuring player agency.
To compare with a simplified analogy:
"Lots of shit going on" draws the question of "what?" - What's going on here? What happens when its over? What can I do about, or with, this situation?
Factions draw the question of "how?" - How can I leverage these guys? How can I get them off my case? How can I pass through their turf? etc.
Factions are more akin to a tool the players can use or an obstacle they can overcome, whereas "lots of shit going on" is more about a specific instance, albeit with many possible outcomes.
I find it helps to think of factions like characters. The faction needs goals, but it also needs a personality of sorts, so that you instinctively now how the faction is going to react in a given situations.
Factions, like characters, are more likely to be interacted with if they are interesting. Keeping in mind that "interesting" in a gaming context means something different than in RL; no matter how devoted you are to "roleplaying", few groups are interested in chatting with an NPC until the wee hours about music or the meaning of life; the sort of things that make real people interesting in a deep way in real life actually need to be treated a bit superficially in gaming.
What makes a character or character truly interesting in gaming is interactivity. What can you do to help each other, or obstruct each other, or preferably both. The faction needs to want something that the PCs can conceivably help with (or appear to help with), and the factions needs to have something that the PCs want in return. Note that the thing a party wants can include asking the other party to refrain from doing something; this is the initial interaction with the highwayman ("your money or your life!") or blackmail schemes.
At a minimum, every faction needs a relationship with one or more other factions; a basic value system or "personality" to guide reactions; a goal; a means by which the PCs can influence the achievement of that goal; and something to offer the PCs.
The difference between a faction and a mere quest-giver is that the nature of the possible exchange (or types of exchange - open ended situations are better) is not obvious to the faction, it must be worked out and proposed by the PCs. In fact, the faction might not know that it is an "exchange", since the faction might not be aware of what the PCs are getting out of it.