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I'm selling off all my reputation and I'm noticing the game is a little harder than usual.

Reputation

I've never been told what reputation does. What exactly does reputation do/give/unlock?

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What is it?

Reputation is one of the three currencies for KSP, the other two being Funds and Science.

 Reputation is a measure to determine the player's success rate at contracts. It can be gained by completing them and getting Kerbals safely back to Kerbin. Failing a contract or losing Kerbals reduces the reputation.

What does it do?

Reputation regulates the amounts of each level of contracts on offer, as well as changing the prestige of available contracts. It does nothing else ATM

Sources

KSP Wiki: 0.24 Update
KSP Wiki: Reputation

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