The Confed are a faction who initially control 15 of the 32 systems in the sector, including most near the player's home planet Basin. Their systems are marked in light blue, and so are their ships (Stiletto, Gladius, Broadsword) once you have a B&S type radar installed in your ship.
They keep the trade routes safe by attacking Pirates, Retros and Kilrathi and protecting merchants, including the player. If the Pirates manage to occupy a system like Vortex Prime, Primeval 1 or New Frankfurt, the Confed will send a fleet led by a Pegasus or Paradigm from either the Haack or Loye Naval Bases to regain control. They also uphold the law on planets and bases in the form of armed police officers who engage troublemakers.
The Confed are initially peaceful towards you, you'd be well advised not to antagonize them by attacking them, raiding merchants, getting caught carrying contraband or assassinating civilians on planets. As long as your offences are not too grave they will calm down again once you leave the current planet, base or system. Afterwards, make sure to pay your fines on Port Newton (Loye system).
The friendlier they are toward you, the less often they will scan you, the easier it will become to smuggle contraband past them.