Sides represent the players in a game. They also serve as a repository of information shared by units, such as technology and knowledge of the world.
You should first decide how much about the sides will be predefined. If you're doing Eastern Front scenarios, it's very easy; you have Russians and Germans and that's it. If you're doing a science-fiction empire-building free-for-all, you may not have to specify anything more than a random side name generator.