NPCs (DMG)

Of all the things the DM does—judging combats, interpreting the actions of the player characters, creating adventures, assigning experience—of all the things he can possibly do, nothing is more important to the AD&D game than the creation and handling of nonplayer characters (NPCs). Without nonplayer characters, the AD&D game is nothing, an empty limbo. The AD&D game is a role-playing game, and for the players to role-play, they must have something or someone to interact with. That's what NPCs are for, to provide the player characters with friends, allies, and villains. Without these, role-playing would be very dull.
An NPC is any person or creature the player characters must deal with and that the DM has to role-play. The player characters must deal with a trap, but the DM doesn't role-play a trap. It's not an NPC. A charging dragon is an NPC—the DM acts out the part of the dragon and the players decide how their characters are going to react to it. There are times when the DM's role-playing choices are simple (run away or charge), but often the DM's roles are quite challenging.
For convenience, NPC encounters are generally divided into two broad categories: monsters (those living things that aren't player character races) and full NPCs (races the player characters commonly deal with). The range of reactions in a monster encounter is generally less than in a full NPC encounter.
The DM has to think of himself as a master actor, quick-change artist, and impressionist. Each NPC is a different role or part the DM must quickly assume. While this may be difficult at first, practice makes the task much easier. Each DM develops certain stock characters and learns the personalities of frequently used NPCs.
There are many different categories of NPCs, but the most frequently encountered are common, everyday folk. Player characters deal with innkeepers, stablers, blacksmiths, minstrels, watchmen, petty nobles, and others, many of whom can be employed by player characters. These NPCs are grouped together as hirelings.