In roleplaying circles, "crunch" means game mechanics like classes and creature statistics and "fluff" means storyline, plot, descriptions, histories and other non-mechanical roleplaying or background elements.
What the factions system introduces to Pathfinder is a brilliant blend of the two. It introduces a long list of organizations, each replete with complex back-stories and plenty of room for later development. At the same time, it introduces mechanical tools for players and GMs to track character advancement within a faction and the rewards available to them as a result.
Factions, for the most part, don't change game balance. They're there to give depth to a character's interaction with the world and provide opportunities for social roleplaying, but the rewards aren't trivial, either. At early levels characters can do research in faction libraries (gaining appropriate bonuses on Knowledge checks) or use contacts within a faction to find information or good deals. As you move up through a faction's ranks and gain TPA (sort of equivalent to "rank") you get access to more specialized features like the ability to recruit helpers from a mercenary faction or manipulate the availability of trade goods in a commercial faction.
I can definitely see upcoming products form Paizo along the lines of faction-specific books; books of additional factions; and so forth. They've done an excellent job with Traits and now Factions of introducing new types of "crunch" that they can expand on in later books without unbalancing the game. This is an excellent thing to see, since one of D&D 3.5's primary problems was that it introduced so many additional classes, feats and other crunch that there was no longer any way for even an experienced GM to keep encounters in line at the higher levels of play. Players would always have a surprising tool available to them that would nearly trivialize any given encounter. As long as Paizo keeps introducing creative tools like Factions without making the basic gameplay any crazier, the system will continue to be very playable.