Range penalty is a reduction of damage for ranged attacks. It occurs when the target is further than 10 hexes from the shooter. Attack suffering from range penalty only does half the damage compared to attack made within the 10 hex radius. Range penalty is cumulative with the obstacle penalty.
Sharpshooters ignore the range penalty, as do all creatures under a command of a hero with either the Golden Bow or Bow of the Sharpshooter artifact equipped.