Almost all NPCs and Creatures in Oblivion belong to one or more factions. These faction memberships control the dispositions of all NPCs and creatures, both towards the player and towards one another. In addition, NPC dialogues can be determined by faction memberships, as can some game scripts.
In Oblivion, your character can be a member of more than one guild or faction at a time. A player can even be in every faction at the same time, without penalty (this is in contrast to Morrowind, which involved both prohibition and disposition penalties for faction membership; part of 100% Completion in Oblivion is achieving the highest rank in every faction).
Faction memberships (your character's and those of the NPC) fundamentally determine who will attack the player (or one another), and who will act as allies. This is accomplished via the faction disposition modifiers. Most factions have predetermined disposition modifiers towards various other factions: positive modifiers for factions towards whom the faction is friendly (including members of the same faction), and negative modifiers for enemy factions.
Another purpose that factions serve is giving ownership to various items. For example, when you join the legal guilds (Fighters Guild and Mages Guild), you will gain ownership of most of the guilds' possessions, and may take them right underneath the guild members' noses. NPCs also have factions so that large numbers of people may enter and exit doors without trespassing.
Frequently, the game storyline or NPC dialogues also provide information about a character's guild memberships. However, at times the story-based guild memberships are different from the faction memberships defined for that character in the construction set. In particular, most NPCs associated with the Arena and Dark Brotherhood have significant discrepancies between their faction memberships and the game storyline. The faction memberships listed on the site are always the character's official faction memberships as taken from the construction set, because these are the only memberships that will affect the NPC's behavior. Any discrepancies with the game storyline will be described in the notes on that NPC's page.
These are the five main factions (Guilds) that the player can join; many NPCs also belong to one of these factions. Each faction has an associated questline. Completing the quests allows the player to advance in rank through the guild. On the Xbox 360 version of Oblivion, with the rank advancements come achievements.
- Fighters Guild -- An Imperially-chartered guild dedicated to serving the people of Cyrodiil.
- Mages Guild -- An Imperially-chartered guild dedicated to the study of magicka.
- Thieves Guild -- A secret guild dedicated to thievery.
- Dark Brotherhood -- A secret guild dedicated to hired killings.
- Arena -- A team competing in the Imperial City deathmatch-style Arena.
These are the only other factions that the player can join during the game. Membership is typically obtained as a reward for completing a quest. Most of these guilds offer some sort of benefit but no additional quests.
- Blackwood Company -- Competition for the Fighters Guild.
- The Blades -- The Emperor's personal bodyguards and operatives.
- Knights of the Nine -- You may join this faction with the official plug-in Knights of the Nine.
- Knights of the Thorn -- Largely the drinking club of the Count of Cheydinhal's son.
- Knights of the White Stallion -- Knights Order out of Leyawiin.
- Mythic Dawn -- The enemy in the main quest.
- Nine Divines -- You may join this faction with the official plug-in Knights of the Nine.
- Order of the Dragon -- You're inducted into this order as the Champion of Cyrodiil after completing the main quest.
- The Order of the Virtuous Blood -- An order of vampire hunters in the Imperial City.