I was responsible for the design side and implemented most of the Living World for Alan Wake 2, this meant keeping track of several hundred instances of NPC's. Such as what mesh they had, what animations they were doing, when do they reappear in the story, do their voicelines make sense, make sure that they don't look similar to anyone near them at that moment. The game also progresses through several states when you complete critical story beats, so how do these NPC's change between these beats, how often do they appear.
The Living World in Alan Wake comprises of the truly background characters and how they interact with the story. There's people gossiping around the police station, ghost hunters that lose their partner, someone smoking on their lunch break.
The Living World in Alan Wake 2 was the filling of the pie, it helped ground this world and make it feel less empty.