Could someone tell me what is the range at which this starts to work? Does it scale according to distance from enemy?

Some discussion can be found in the vicinity of here, and, importantly, here.

I would suggest going to the crydev.net forums for this one. There are parameters in the setup of the game which can be adjusted for this in cryengine and the SDK version for C2. Plus there are loads of tutorials about it on youtube too. Like for how this works, and how its setup in the game.

http://www.crydev.net/ If you wanna know more about how the game works internally, then this is the place to start.