It is a poorly worded and defined spell, hopefully it will be clarified in 3.5
from the srd:
PFE:
Second, the barrier blocks any attempt to possess the warded creature (as by a magic jar attack) or to exercise mental control over the creature (as by a vampire’s supernatural domination ability, which works similar to dominate person). The protection does not prevent a vampire’s domination itself, but it prevents the vampire from mentally commanding the protected creature. If the protection from evil effect ends before the domination effect does, the vampire would then be able to mentally command the controlled creature. Likewise, the barrier keeps out a possessing life force but does not expel one if it is in place before the spell is cast. This second effect works regardless of alignment.
from vampire:
Domination (Su): A vampire can crush an opponent’s will just by looking onto his or her eyes. This is similar to a gaze attack, except that the vampire must take a standard action, and those merely looking at it are not affected. Anyone the vampire targets must succeed at a Will save or fall instantly under the vampire’s influence as though by a dominate person spell cast by a 12th-level sorcerer. The ability has a range of 30 feet.
dominate person:
Enchantment (Compulsion) [Mind-Affecting]
Level: Brd 4, Sor/Wiz 5
Components: V, S
Casting Time: 1 action
Range: Medium (100 ft. + 10 ft./level)
Target: One humanoid of Medium-size or smaller
Duration: 1 day/level
Saving Throw: Will negates
Spell Resistance: Yes
The character can control the actions of any humanoid that is Medium-size or smaller. The character establishes a telepathic link with the subject’s mind. If a common language is shared, the character can generally force the subject to perform as the character desires, within the limits of his abilities. If no common language is shared, the character can communicate only basic commands, such as "Come here," "Go there," "Fight," and "Stand still." the character knows what the subject is experiencing, but the character does not receive direct sensory input from him.
Subjects resist this control, and those forced to take actions against their nature receive a new saving throw with a bonus of +1 to +4, depending on the type of action required. Obviously self-destructive orders are not carried out. Once control is established, the range at which it can be exercised is unlimited, as long as the character and the subject are on the same plane. The character need not see the subject to control it.
Protection from evil or a similar spell can prevent the character from exercising control or using the telepathic link while the subject is so warded, but it does not prevent the establishment of domination or dispel it.
Make of that what you will.