"Inhabitants" refers to the various NPC's that dwell within the locations of your campaign. In dungeon-type locations, these are most commonly monsters. In town-type locations, these are most commonly people of various stripes and professions.

When selecting inhabitants for a location, you may want to pay attention to that location's terrain. The elemental affinity of a location should be represented in those creatures and people native to it. If your location is earth and ice dominant, for instance, you should select monsters that possess similar elemental affinities, and you may choose cultural elements using those elements for the townsfolk that live in the village there (such as making mining important, and having townsfolk who like winter sport, such as snowboarding).

Choosing inhabitants that reflect the terrain helps reinforce the location's basic type, and makes the associations of the terrain stronger, giving your location a cohesive theme that allows it to stand out from other locations. "Mountain Town Xervos," where your characters go to re-stock, is much more generic than "Xervos: home of the international snowboarding contest," where your characters can compete in a contest, or allow it to happen by clearing the space of monsters, or otherwise interact with this interesting detail. Similarly, "sunken ship dungeon" is fairly bland, if all you're doing is fighting the same goblins and trolls that you fight in the "dark forest," but a ship that was sunk by the Water Dragon on a rampage carries a specific threat as you fight his piscine underlings, as does the "Forest of Shadow" with it's links to the realm of the dead.

When choosing specific inhabitants to feature in gameplay, you typically want to think at the encounter level: what do you want your players to face in social encounters? How about in combat encounters? You also want to think about how many encounters you'll be having at the location.

For dungeons, if you're using the basic "one location per adventure" rule of thumb, you'll have about 9 encounters in each location, most of them (about 6) combat encounters. One specific monster — or one family of monsters — should reoccur in almost every combat or social encounter. Choose two "subordinate" monsters, and perhaps go another tier deep with two monsters subordinate to each of those. You can go deeper, and if you're going to be spending more time in the location, you should showcase more variety in the monster selection.

For towns, you are less expected to have encounters, so it is more practical to think of the goods and services that the town offers, and the cultural details that make a town unique. Sports, arts, crafts, languages, fashion, and even archetype can help flesh out the town, and, again, the more time the campaign is likely to dwell on that town, the more details should appear. You can start with one big, broad archetype ("All people from Podunk dress like country bumpkins in overalls and straw hats"), and you can add more detail as more time is spent there (in the second session in Podunk, you also reveal that the weaving tradition is very strong among it's women, and they create beautiful tapestries that get sold to royalty; in the third session, perhaps you note that the locals enjoy a game called Mudball played in the warm summer rains by having the characters deal with a party the town throws for its hometown team). The size of a town is often shown by how pricey and diverse it's goods can get. Small towns sell basic supplies such as potions and low-level equipment, and might have an inn for travelers, but big cities might sell exotic or even illegal goods fairly openly, and probably have a choice of hundreds of inns to stay in. You can invert some of this to give towns and cities some distinct characteristics. Perhaps your small mining town is near Mythril mines, so mythril equipment is common there. Perhaps your big city has consumed the natural land around it, so basic food is expensive and you won't find Druids or Geomancers very often at all.

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