the whole "choosing sides" thing doesn't really matter at all except for your Guild. It has nothign to do with a personal aspect really.
On a personal aspect, the Faction Points you have accumulated determine what side you can buy stff/craft, etc.. on. So in order to buy Luxon armor, you must have accumulated more Luxon points than Kuzrick points. You can have 2000 Luxon points and 1500 Kurzick points, but since you have more Luxon points you can only talk to the Luxons and Kurzicks will ignore you, regardless of what Faction your Guild Chose.
As far as redeeming points goes, there's a Factions "rewards" guy in each respectable area. You can trade your points in for Jade or Amber. depending on which area. Amber is Kurzicks crafting material, Jade is Luxon. It costs 1000 faction each tiem you take reward from teh Rewards guy. ---
ALSO, you can trade 5000 faction points to a guy (can't remember his name) in either town and it'll give Faction points for your guild. Of course this is poinltess unless your guild is trying to gain control over a territory as these just continue to deplete over time.
I hope thishelped a little and didn't confuse you even more