An NPC, or non-player character, is any character in a game controlled by the game itself rather than by a human player. NPCs include shopkeepers, quest givers, companions, crowds, and enemies.
The term comes from tabletop role playing games, where the game master played every character who was not one of the players heroes. Video games kept the label and the division: if a person is not holding the controls for that character, the character is an NPC, no matter how central they are to the story.
NPCs do most of the work of making a world feel inhabited. They sell equipment, deliver exposition, give and complete quests, follow schedules, and react to what the player has done. Enemy NPCs provide the opposition in single player games, driven by behaviour rules for patrolling, attacking, fleeing, and calling for help. Companion NPCs sit between the two groups, fighting beside the player under game control, sometimes with limited orders the player can issue.
The word has also left games entirely and entered everyday slang as an insult for a person seen as scripted or unthinking. Inside game discussion it carries no such judgement. It is a technical label for who, or what, is in control.
In play"Talk to the NPC by the gate and she will open the road to the next town."