Items, Items, and more Items. The quest engine understands whether one or more people are working on a quest, and can deal with someone else solving a quest you have active in your log book. NPCs will remember the different players they encounter, and their reaction to them. Everyone can literally go their own way in the multiplayer game. I can be off looting someone's mansion while my friend is sweet-talking them out front.
People can play competitively or cooperatively, or the whole thing can be a big death match.
Something I like to do in multiplayer is to stay a step or two ahead of someone else playing, and kill an NPC in their path. If timed correctly, a guard will happen upon them just as they reach the corpse, and assume they are the killer. We don't expect that to happen, but it could be possible with the right equipment. In other words, we're not capping the number of players - that is up to the server. It's a secret .