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NPCs vary greatly in importance—from the NPC innkeeper seen once by the player characters, to the NPC arch-nemesis that comes back time and again for an entire campaign.
There is some debate about how much work a gamemaster should put into an important NPC's statistics; some players prefer to have every NPC completely defined with stats, skills, and gear, while others define only what is immediately necessary and fill in the rest as the game proceeds.
There is also some discussion as to just how important fully fleshed-out NPCs are in any given RPG, but it is general consensus that the more "real" an NPC feels, the more fun players will have interacting with him or her in character.
The more important the NPC is — the larger a part of the game he or she is — the more detailed or layered it is probably worth making that description.
I used flags to mark what information the NPC had "used", if there was some danger of repeating a statement or reasserting the same thing in a new context, but this did not approximate, or attempt to approximate, a systematic representation of the facts contained in a conversation.
NPCs give the impression of being much more active and thoughtful if they show signs of having a private agenda of their own — which may include raising new conversational topics, deciding to cut a conversation short, and so on.