Internal politics can factor into project success in many ways.
Examples: Competition within a project or with other groups can cause a lot of conflicts within an office, for example. Access to resources such as money, hardware, software, etc. for a certain project. Gossip and issues with co-workers or management can cause problems with communication, morale, productivity, and more.
Ultimately, office politics is a huge reason for the failure of many projects and can severely impact a work environment if not monitored and dealt with properly.
Conflict between co-workers is inevitable. The bigger organization, the more conflicts you will find. The fact is more people mean more money and more people also mean more problems. Hence, project leader has to know how to handle such situations and know how to put people to work together with differences, but less conflicts.
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