....you're making me think of Deliverance. I'm now disturbed. D:

I always thought about it as 'here's a small representation of the population, and  a couple of townies who stand out to talk to.'

I thought the whole purpose of an adventuring party was to provide genetic diversity to small towns? As kind of a public service ;-)

Just thinking about sends shivers down my spine. I don't know why.... -_-

I'm always loathe to use FF7 as an example of anything, but here we go.

When you visit Kalm for the first time, there's a few buildings. You can go to the shops and get Cloud's first weapon other than Zach's Buster. You can loot a pistol for Vincent and get a couple of elixirs. Then you go into the inn and experience the flashback. Not so much there, eh?

Think about FF7: Dirge of Cerberus. The first mission is in Kalm. It's huge. There's alleys and roads and muti-story buildings.

Just because we don't see everything doesn't mean that there isn't more to the town itself.

A lot of Final Fantasy games could be used as an example of that Mr. K, especially Final Fantasy 9, with cities like Alexandria. In the game, you only explore the main street and a few side alleyways, but when you actually see the city, it's humongous.

Even though Dirge of Cerberus is a bad example I do know what you are talking about, take Coneria as it has six building that you can enter but all of them lead to the same place, but with Dragon Quest VIII and IX you are pretty much seeing the whole village.

Well then, obviously, the people in said towns never leave, and thus they are all involved in inbreeding with each other. I can really only think of a single RPG where an entire town is visible and they provide at least one example of citizens having children with members of other villages, and that is Lufia 2, between the main characters Selan and Maxim, both of whom are from seperate places. Otherwise, everyone in a single town is probably related.

Well that was the way the real world worked prior to the modern age. Hell, probably prior to the Renaissance.

In a lot of communities (and royal families especially), it was frowned upon not to intermarry.

One of the reasons I like Dragon Quest is because of the nice design the towns have. They are inclusive, though; you see all their walls and everything. A better example would be Golden Sun, which has many more NPCs per town, but still not enough for a genetically-diverse population.

The fact of the matter is that unless the story dictates an NPC dies, they're effectively invincible. A tiny little girl living in a town near gaping helmouths can go looking in a dangerous valley for her lost cat. You'll fight hundreds of monsters larger than houses to get to her, but when you do get to here there won't be a scratch on her. Monsters don't attack NPCs except during scripted events. In other words, they're free to breed with whoever they want, wherever they want.

Also, Dragon Quest has tons of traveling merchants and warriors.
 

Traveling merchants, just thought of Nomads that you might never come across.