Reputation in LOTRO represents two things: 1) In lore/story terms, it represents how indebted a faction is to you for favors you have done for them in the past. In some cases, a faction might not deal with you at all until you've managed to curry some favor with them. 2) In gameplay terms, it represents an alternate ladder of advancement, a form of gameplay that players can pursue to give them access to high-end rewards that might otherwise only be accessible through group play. Of course, that's not counting the orcs - orcs hate everyone, and are notoriously difficult to curry favor with.