I've considered including this topic in "start a larp" series, but in reality this will be something that's hopefully useful to all players and game masters in understanding how a particular larp is designed. NPCs are a term descended from tabletop RPGs, meaning non-player characters. Tabletop role-playing games have a single dungeon master/game master/storyteller who, besides leading the story, also plays all the extra characters who make that story possible.
In larp, things don't work the same way as in tabletop. Because, you know, the game is live. There's a variety of ways to put NPCs in game, play them, and plenty of games work just as fine without any NPCs.
I'll define four broad categories of larps, considering how their story is designed with NPCs in mind. Most larps will probably fall somewhere between these categories.
1) Jumper NPCs
Few people playing are playing several NPCs - usually (with several exceptions) expendable and shallow characters intended as an obstacle. NPCs are typically played by organizers. The style of such games is usually gamist, close to tabletop, and quite dynamic, with lot of variety but limited depth.
2) Permanent NPCs
A larger group of people dedicated to play NPCs, playing (usually) a single role each. Will be less dynamic than 1), but it usually provides greater depth, better NPC costuming and more consistent world than 1). Requires finding sufficiently numerous and dedicated NPC player base, and won't work on smallest larps where every person matters.
3) Integrated NPCs
Like 2, but designed in such a way that a line between players and NPCs is blurred, and any differences between the two are minor and not apparent at first. Here, NPCs don't usually run the plot but help the larp happen.
4) No NPCs
Fully open games, with GM provided background but player decisions only. Players provide all the content, and can be - to a point - directed by GM, or not. Sometimes players or player groups take the same role as NPCs in other larps.
It's important to repeat that all these game styles - from perspective of NPCs existing or not - are valid, they just typically result in something different.
Most Croatian larps are organized like 1, some are moving toward 2 though. Terra Nova's goal is halfway between 2 and 3 (once enough NPCs sign up). ConQuest of Mythodea is 2 with touches of 3, Drachenfest is 3 with touches of 2. Our Steampunk is 4 with a bit of 1. Hungarian Chronicles of Demgard are 4, as well as most nordic larps.
All those styles are valid ways to play and there's lessons to be learned from each.
Play every character you play with a clear purpose in game. Nevermind if the game is totally open or railroaded, stay true to your characters. I've seen it numerous times that people play NPCs well, but their own characters are just fantasy version of themselves, acting as if they came to a picnic. Don't be like that and never be afraid to give your characters personality and attitude. Stand out and act more like an NPC. Characters like these are more interesting to play, and they're more fun for other people too. And, you might learn something new.
If you're casting NPCs, make them as close to players as possible. Give them real motivations, real expectations, and detail. Give them a framework, a way of thinking, not just set things to do. If you're playing NPCs, GM will provide you with a description, but feel free to fill the blanks - it will make the character more alive, more fleshed out. Design them and play them as you would PCs.
Do this because it's your game and you want to improve it. Improve the immersion for you and other players on your larp. If you've been playing the same way for quite a while, there are always ways to improve it or try something new. There are always new experiences, and there's always something new that can inspire you...
Give it a go, enrich your larp. It will be worth it.