Knowing whom to invite to your wedding can be a tricky business...and it comes down to a combination of several factors: your budget, your locations, what's typical in your social/cultural circle, and your relationships with your family and your fiance's family.
Factor one, budget, is the one which for practical reasons must be addressed. If you have no set budget and the sky is the limit, then you may feel free to invite whoever will make you, your fiance, and your families happy. If your budget does have a set limit, however, you need to consider first how many people you can accommodate at the type of wedding and reception you wish to have, with that set amount of money.
The next thing to consider is the location at which your ceremony and your reception will be held. Can each place hold the number of people you wish to invite? Your ceremony and reception locations should have information on the number of people that each can comfortably accommodate. Remember that you want to make sure that your guests have an enjoyable time, and it will be difficult to do so if they're packed into a too-small space.
Another item to take into consideration is social and cultural tradition for weddings. In some cultures and social circles, it is customary to invite huge numbers of people to weddings, whether or not the bride and groom know them well. For others, weddings are family-only or highly religious affairs, at which the guest list is strictly limited. Think back to recent weddings in your social set; this will give you an idea of what is typical and act as a general guideline as you move forward with your plans.
Finally, and most importantly, remember that your family relationships are important, and it's vital to make your families feel involved and respected. You might ask both sets of parents to create a wish list of everyone they would like to invite, and then ask them to divide that list into "must invite," "would like to invite" and "could be left uninvited if necessary" categories. Then follow the same list-making process yourselves. In doing this, you'll come up with a set number of "must invites," which will serve as a base number of guests.
Some people may not be willing or able to categorize their guest list this way, but be firm. Chances are good that there will be limiting factors, such as the size of your location(s) or your budget, that will help you make a final decision as to whom you invite. Do your best not to alienate anyone during this process; each family may have different ideas about what a wedding should be, and anything surrounding a wedding can be come very emotionally charged.
Be courteous, warm, and firm as the occasion demands, and remember that the financial support of one person or another may make them feel entitled to certain concessions. It is up to you and your fiance to decide whether or not to allow this, or to simply make other arrangements.