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You can only group and talk to players in your own faction. You also can only view and befriend players in your faction when using the in-game social commands. The intent is to make you feel like a member of one enormous team, while at the same time setting up the other faction as an enemy or, at best, a rival. Thus, if you wish to play with your friends, you will want to all join the same faction. Other content, such as the zones you can visit and the quests you can accomplish, are also organized by faction. Some quests can only be completed by Horde players and others can only be completed by Alliance players. Some zones offer cities and interactive NPCs for one faction, but are completely hostile to the other.