You can retreat any non-native faction. There can be as few as one faction, and as many as 8 factions (rare-ish) in a system.
Native factions usually have some part of the system name in their own name, like Dragons of Wally Bei. Non-native factions either have a name of another system, or a player has named them, and these are usually like your faction's name that is not procedurally generated.
Whether you should retreat a faction or not is up to you. Generally, if you have no or good relations with another PMF, keep them. Friendly factions backfill your systems and stop others getting into your system. If you're having a bad time, well, then use retreat techniques I document in my BGS Guide to get rid of them by reducing their influence. It's hard work.
If you want to make room for yourself, you can retreat a non-native faction to guarantee landing in the system per the rules of expansion. Invasions occur when there are 7 factions and you land in the system, and you MUST win the war to kick out one of the other factions.
