So, basically everything in most videogames, but specifically Baldur's Gate, is representative of something bigger, imo.
There are hardware reasons why a thriving metropolis will have a hundred NPC’s and not a million, but there are also gameplay reasons. A city of a hundred feels rich and full of life, where a city of a million feels like a faceless crowd.
Every Bounty Hunter in the land is after you. You see the notices being sent out to any who will listen. You only actually encounter about a dozen bounty hunters though, and from this you must extrapolate the rest. A dozen bounty hunters punctuates your journey, where a hundred bounty hunters would just be tedious.
Bandits have been terrorizing the nation. You find their central hideout. There’s about five big boss guys with unique abilities and equipment, and a dozen facelesss mooks. This is an dynamic and interesting encounter, where a realistic fighting force that could terrorize a nation would be a slog. You’d be fighting faceless mooks for hours with no end in sight.
You find some woods. They’ll be about 2 minutes to walk from one end to the other. There’ll be about four or five points of interest. This is a fun little exploration. If it were three hours to walk from one end to the other and large swaths of it were just woods, suddenly the fun is gone.
The real world offers more experiences than any of us will ever participate in, but the game world must offer a cohesive meal for us to gobble on up and move on to the next thing. Part of how they offer that cohesive meal is they cut out the crud.
So that thriving metropolis, it’s mostly named NPC’s with specific interactions, and a little bit of unnamed fluff to pad it out. Those bounty hunters, they each have unique abilities. You fight the bounty hunter waiting for you at the inn who throws some new stuff at you, but we don’t bother the player with the bounty hunter who wakes them up in the morning with stuff they’ve already seen. The bandit camp has the interesting bosses, and leaves enough faceless mooks for you to do a victory lap if you’re so inclined. The woods cut out all the aimless wandering, clusters all the points of interest together. The player gets the parts of the world that are fundamentally fun, because this is a videogame, and that’s what we’re doing here, but a larger more boring universe is always implied to exist.