I have lot of data in my org but I want the workflow to execute on a specific set of records based on region. Can I restrict workflow to execute only on this record? Should I have to use sharing settings?

Sharing settings dont come into picture here. Workflows generally work on all data in the org but not on the basis of user shared records. You can restrict the workflow execution by placing a region criterion in the workflow rule so the workflow would not touch any other records.

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