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FavorsGuide

You can request to be given a quest from any of the great trees (see Places In Normal Realm & Tree Quests), your reward for completing a quest is a favor unique to that tree.

What do favors do?
Combining favors with a totem allows you to create one of three special types of totems that can raise your characters basic stats (ie 10/1/1 etc). These items are called stat totems and are explained in some detail in on the stat totem page.

What do paper favors do?
(This was removed when P2P was stopped) Not a lot, your best bet is just to sell them for cash at the merchant - as the ugly red text told you, they're "booby prizes" for those players who don't qualify for real favors.

Why? Because not so long ago players got greedy and used small armies of untrained characters to farm favors from quests so they could make massive stat totems really quickly.