For those of you who are old enough, think back to about 1997-98 when the nWo was the hottest thing in wrestling. How many of those nWo t-shirts did you see at the mall or in school? Tons.
The shirt was cool: It was black, looked menacing and had an edge to it that angst-filled teenagers were all about. None of that would have been possible without the formation of the New World Order.
Along the same lines, how much DX crap was out there? Shirts, jerseys, uncensored videos, posters...the whole nine yards.
Think about how much merchandise the Four Horsemen would have moved if NWA had the business acumen to do so. There would have been thousands of people walking around in four fingered t-shirts.
Factions give you something that a singles wrestler doesn't: A group identity. Wrestling fans want to identify with a group and, if that group happens to feature their favorite wrestlers, then that means money for the promotion.
For example, I would call Nexus a marginal success (in terms of storyline), and I still see a decent bit of their t-shirts on people, so I'd say it's definitely effective.