Summary
Perform an X-Factor by pressing all four Attack Buttons at the same time. Your characters will begin to glow red afterwards until X-Factor runs out.
There's Only One X-Factor
You are only allowed one X-Factor per game. You can see this next to the portraits of your characters. If you have an X-Factor available to you, there will be a glowing "X" symbol on top of a circle next to your portraits. Once you've used X-Factor, the circle will look like it's been shattered and the glowing "X" symbol will no longer be there.
While X-Factor is active, you'll see that your Point Character's life bar is no surrounded by a red border. A dark border begins draining slowly down your life bar. This is the timer of how long your X-Factor will last. As soon as it finishes draining, X-Factor ends.
Power Up
When you activate X-Factor, you get two distinct power ups: your characters will do extra damage on all hits and your characters will also get a speed boost. For the damage, not only does your character get an extra percentage boost in damage on all hits, but the Damage Reduction minimum is raised. Normally, Damage Reduction can drop a move's damage down to a minimum of 10% of its original damage. So at the tail end of a combo, a move that does 10,000 damage will do, at worst, 1,000 damage. However, in X-Factor, the minimum damage a move can do can be raised as high as 60%! Thus, Hyper Combos, for example, that do a ton of hits will do a lot more damage at the end than they normally would because all the latter hits will be doing 60% of their base damage instead of 10%. This is a huge boost! One thing to note about the damage boost, however, is that the amount of boost the character gains is actually character specific. Harder hitting characters usually gain a larger boost since they can only land a few hits and characters that can land many hits in a single combo get lower boosts.
For the speed power up, your character will be much, much quicker in just about every action... so much to the point that some of your combos that you normally do can really get messed up! The timing will change on just about everything you do. Also, some combos that aren't even normally possible will become possible thanks to the speed boost. Wesker, for example, on X-Factor can juggle multiple shots of Toward + C in a row because the moves come out faster and recover faster. Combine that with the damage boost and these combos can outright K.O. entire opponents almost instantly! Also, as with the damage boost, different characters gain different levels of speed boost. For example, Chun Li on X-Factor gains a lot more speed than Hulk on X-Factor.
Assist Characters, when used as Cross-Over Assists, also gain all the power and speed benefits they normally receive as well. So Assist actions will actually be slightly faster as well.
The Levels of X-Factor
X-Factor comes in three Levels and the Level that is activated is dependent on how many of your characters are still active. If you have three characters active, you will only activate a Level 1 X-Factor when you perform it. If you have two active characters (one has been K.O.'ed), you will get a Level 2 X-Factor. And if you are down to your last active character, activating X-Factor will give you a Level 3 X-Factor.
The difference in the Levels affect two things. First, the damage boost and speed boost you gain are amplified at higher levels. While Chun Li on Level 1 X-Factor may seem quick, Level 3 X-Factor Chun Li is verging on insanity. And while Thor on X-Factor Level 1 can put a lot of hurt on you, a Level 3 X-Factor Thor can almost K.O. an average character in just 4 hits.
The other difference is the length which the X-Factor power up lasts. Level 1 X-Factor lasts a decent amount of time but a Level 3 X-Factor lasts a very long time. So if you are down to your last character, you can take out an entire opposing team using one X-Factor thanks to the crazy damage and speed boosts and because of how long it lasts.
One thing must be kept in mind: the Level of X-Factor you get does not change when a character is defeated. Let's say you have two characters left and one of them is on the verge of K.O. If you activate your X-Factor to try to save that character and your opponent still manages to defeat him/her, when your last character jumps in they are still in Level 2 X-Factor. So sometimes it might be more beneficial just letting your 2nd character get K.O.'ed and saving the X-Factor for a Level 3 X-Factor with your final character, as it will give you better benefits and last much longer.
Character-Specific X-Factor Bonuses
Damage Boosts: