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What exactly does GW mean when they use the term area of effect (AoF) in their rules? The problem for me is that they rarely if ever use this term... the one time I can remember seeing it mentioned was for Collar of Khorne (CoK). Other gaming systems like War Machine use the term frequently so it is much easier to apply those rules.

It's a long shot, but 'Area Of Effect' generally refers to the area affected by something.

It's used in the CoK rules to cover Psychic Powers that have templates and that just target specific areas (FoD, for example). If the model is specifically targetted, under a template, or within the measured radius (whichever applies to that particular psychic power) they are within its Area of Effect.

...area affected by something...

I agree as that is what makes the most sense to me. The rules for CoK state the item nullifies any psychic power that that includes the bearer in the area of affect. So only that which affects the bearer can be negated. Say for instance Winds of Chaos would have no effect as long as you roll 2+.

More feedback will be appreciated.

Im kinda confused as to what you want to know.
Yes the area of effect is the area which is affected, literal phrases in rules are fun, and the collar of Khorne does indeed nullify psychic powers.
But i think you said that.

Does CoK nullify psychic powers such as Fortune and guide? See what I am getting at?

Is not the 'AoF' of Guide a single unit within x inches?
Unless the CoK is that single unit, then it would not nullify it.

CoK (and Sororitas Armour) can only dispell powers that specifically target them, or which create a 'bubble' which contains them within its area.

Vortex is an example of a 'bubble', and is easily seen as it is represented by a template. So is Fury, except in its case, the 'bubble' is stretched into an infinitely thin straight line.
Storm of the Emperor's Wrath are examples of a 'specifically targeting' power.

Synapse is neither (or both depending on our perspective), as it only effects friendly units. In essence, it creates seperate 'bubbles' for each unit, the area of which are the exact sizes of said units. The same is true for Fear, yet in the opposite way as it effects only enemy units.

In most cases, the Area of Effect does not include the blank space around the units which it effects.

 

Unless the CoK is that single unit, then it would not nullify it.

Exactly.

Now onto Fortune... obviously a Khornate character or deamon is affected by this since it has an effect in close combat. Area of affect does not state whether the effect is first order, second order, and so on so forth.