Do I want to concentrate my contacts in a specific faction?
Depends on what you want out of them. Doing work for contacts generally improves relations with the associated faction, military contacts will sometimes provide access to faction-specific ships that aren't normally available on the open market, and if I recall correctly some contacts can also help you mend fences with the faction controlling the world they're on if you managed to really tick that faction off, so if you're trying to remain a neutral free agent then having contacts with "everyone" is useful, and it can also be useful to concentrate your contacts on one faction if you really want to get in bed with them and buy your fleet of Paragons or whatever.
Do I want to concentrate my contacts in a specific location?
Having all of your contacts in one place is generally more convenient than having them spread out. Nonetheless, five reasons why you might not want to have all of your contacts in one place:
1. To the best of my recollection, contacts affiliated with a major faction (Hegemony, Tri-Tachyon, Luddic Church, or Persean League) are only found on colonies controlled by that faction.
2. Having two or more contacts on the same world increases the likelihood that you might be offered incompatible jobs, for example two or more "attractive" bounties far enough apart that completing more than one of them within the time limit is impractical or a pair of consignment shipping jobs that would require you to have more cargo capacity than you currently have or can reasonably obtain.
3. It's easier to get five high/very high importance contacts on five different worlds than it is to get them all on one or two, and higher-importance contacts tend to have "better" offers.
4. Spreading your contacts out around the sector means that there's "always" one nearby, for certain definitions of "nearby," which can help reduce 'dead' time between jobs or if you just can't be bothered to fly all the way back to Jangala or wherever to see if your contacts there have anything interesting on offer.
5. If for some reason a colony on which you have a contact decivilizes, you lose your contact; if all of your contacts are on a colony that decivilizes, you lose all of your contacts. Probably not a serious concern unless you, personally, do something to destabilize that particular world for a long period of time or maybe if the pirates/pathers get way out of control.
I'm not familiar with the mod you mention, but that might change the above considerations to some extent.
But I don't know if there is any point to farming rep with them.
In principle, the more reputation you have with a contact, the more likely they are to offer something to you and the better those offers are likely to be. In practice, I don't find it makes enough of a difference to be particularly worth the bother, especially as all contact types, at all levels of importance, often offer jobs that I'm simply not interested in taking.
I understand they give out quests, but can't I just get quests from randos in the dockside bar?
Yes, you can - to an extent. The difference is that a contact is always there, usually has at least one job offer per month (though not necessarily one that you're interested in), and is somewhat likely to be offering something better (at least if they're high or very high importance) than the 'rando,' plus there's the Omega bounty that Megas already mentioned.
Additionally, getting jobs from contacts isn't mutually exclusive with getting jobs from bar encounters, so if you're reliant on quest rewards to pay the bills or build up a war chest or whatever, well, having a few contacts who you can ask for work will on average get you more work per time period than just relying on bumping into the right people at the local bar.
And does the faction matter, besides getting rep towards the faction?
Faction matters for what kinds of blueprints they'll let you use when manufacturing (from military contacts), what kinds of discounted ships they'll sell you, and what kinds of ships you'll fight when doing deserter bounties.
It can also matter in that some missions offered by military contacts - spy satellite deployment, agent extraction, raid, bombardment - won't target colonies controlled by the faction with which the contact is affiliated, at least in my experience. Not really a big deal since there's no penalty for declining a job and you can usually pay a story point to dodge some or all of the faction-reputation hit for performing such a mission, but it might be something to consider if there's a faction that you for some reason really don't want to tick off.