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I am on a Office 365 E1 plan. If I invite external users to use my sharepoint portal and allow them to use some limited features like document access, sharing and uploading, will it in any way effect my current licensing cost?

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No it won't. This feature is for that purpose.

For example a client has 100 employees, who share access to a document store to 500 external clients. The company would pay the subscription for the 100 employees only and the 500 external would use the "Share Site" functionality.

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The only limitation that might come up is that the number of external users allowed might shrink, depending on your current O365 plan. Until now it is identical. –  Shegit Brahm Dec 18 '12 at 10:14
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Today (april 2014) this limit is set to 10'000 externa users. –  Benny Skogberg Apr 22 at 12:00
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