Neutrals zones represents area of the game where characters are invulnerable to damage and pvp/pve effects.

Neutral zones types:
1.Towns/Villages:Large area filled with vendors/buildings/waypoints/portals etc .
2.Shrines/Rooms inside hostile areas: tiny areas, usually combined with waypoint system or permanent portals to town.
3.Dynamically created neutral area: Areas similar to #2 created by player actions or from quest/event effects.
4.Player owned housing/buildings: area may also be inside instance or neutral region. If its inside hostile territory its treated as #3.

Typically while in neutral zone of type (1/2/4) character is fully healed and cured of all debuffs, with type 3 only providing partial benefits(e.g. only no damage).