Bluetooth 2.0 devices work with the 2.4 GHz radio band, which is the same unlicensed frequency used by many other wireless devices. If many devices in the same area are all using the same stretch of bandwidth, it can lead to overall network problems, as the signals collide and information has to be resent. The Bluetooth signal was designed to change it's frequency many times per second to reduce this interference, but if enough devices are trying to use the same small stretch of bandwidth, interference is inevitable.
Most Bluetooth devices, especially those that run on battery power, are Class 2 Bluetooth devices. Class 2 devices have a range of about 10 meters, or around 30 feet. The range limitations are meant to avoid the quick depletion of the battery. While the Bluetooth signal will work through walls, the more objects that are in between the devices, the less overall range the devices will have.