What does it mean to be "in the world, but not of the world"?

John 17:14-15
I have given them your word and the world has hated them, for they are not of the world any more than I am of the world. My prayer is not that you take them out of the world but that you protect them from the evil one.

While we're called to engage the world and make disciples of all nations, we're also called to be set-apart, holy, etc.

As an edgy Christian conference, we sometimes get criticized for being too much in the world and other times for being too seperate. It seems there's a fine line between engaging the world, enjoying the stuff in the world and being "of the world."

How should we, as Christians, balance being in the world while being "not of" it?