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Sphere of influence is anything that shows up on your compass. You can find out which characters are in your sphere of influence by the appearance of their name in the party window. A white name indicates that they are within the sphere; a greyed-out name indicates they are not.
Sphere of influence is also known as the minimap or the radar. It is not to be confused with the aggro circle.
Any skills that refer to "all" of something, such as all party members (e.g. Heal Party, Orders) or all enemies (Meditation of the Reaper) are limited to this range: all otherwise valid targets outside of your sphere of influence remain unaffected. Certain skills, such as Mirror of Disenchantment and Mallyx's Summoning Shadows affect all valid targets, even outside of the sphere of influence.
Additionally, your sphere is the maximum distance to which you can shadow step. Although most skills are directly targeted and therefore cannot teleport more than an aggro circle range, some, such as Aura of Displacement and Shadow of Haste have a potentially limitless range. Instead of teleporting to their intended destination, they teleport as far as to the edge of your sphere.