Using character examples from a variety of RPG series, including Fallout, Dragon Age, The Witcher, and The Elder Scrolls, one of GameInformer's editors has authored a new "RPG Grind Time" feature about "the importance of crafting interesting NPCs". The article is not as long as I'd like it to be, but it's worth a read nonetheless:
Of course, NPCs should also be used to showcase the issues going on in the world, especially in terms of politics and war. The best NPCs shed light on the larger conflicts at hand, giving you a more personal glimpse into their impact. One of my favorite parts of Dragon Age is just chatting with the various groups that are at odds to try to figure out who to support and what’s best for the future. BioWare did a fantastic job at showing plenty of gray areas in the Templar/Mage rivalry. There are always multiple sides to every story, and using NPCs to showcase this gives them depth beyond simply being signposts that mutters generic phrases.
One thing I loved about The Witcher 3 is that it felt like life was going on all around you. You could trigger random events, such as investigating a fire or following a young lost boy. These experiences didn’t always yield favorable results – sometimes poking your nose where it doesn’t belong gets you into trouble – but there is a thrill in that. I still remember telling off a preacher and having him send witch hunters after me as retaliation. I also still have ill feelings toward that little boy. After all, it ended up being a setup where he led me to a group waiting to mug me, but these are examples of how such small interactions can stick with you.