Favor is your current relationship-status with a certain NPC. By raising your favor with that person you'll recieve various rewards such as the ability to utilize new skills, experience, recipes, ability to list a limited amount of items for sale to other players (similar to auction houses in other MMO's) and increased value on items sold.
Favor is raised by giving specific gifts to NPC's, doing favors for them or completing quests. By reaching 100% favor you'll take the relationship to the next stage, the amount of favor gained has diminishing returns based on how many times you've reached 100% favor. The different stages of relationship you can achieve with an NPC goes as follows:
| Relationship Status |
|---|
| Neutral > Comfortable > Friends > Close Friends > Best Friends > Soulmate |