So, I'm making an RPG thing, let's talk about NPCs!
99% of NPCs in video games are "backstory as characterization" NPCs. This is easy to illustrate.
In Dragon Age: Inquisition, you go outside your castle and there's a yard. In the yard is warrior lady, a bunch of random trainees, and first game guy. If you talk to them, your only real options are to ask about their oh-so-complex pasts.
In reality, if you wanted to become friends with people in a situation like that, you'd share the situation with them. You'd bullshit about the new recruits, tease them about something, roll your eyes with them. It's ripe for complex interactions because there's three people with personalities (including you) and a bunch of minor NPCs. There's loads of details that could happen but, of course, don't.
You can occasionally choose some minor local detail from the drop down or see it mentioned briefly. For example, you tease warrior lady about needing a new practice dummy. But it's so... one-off and scripted. It's not even vaguely organic, and flows roughly as well as Joe Biden rapping.
The biggest dialog path is asking about backstories.
This is a great way to get to know someone. See what they went through, how they acted, what they think of their past selves. Yup. You can really get to know these characters.
But knowing someone isn't even vaguely associated with being friends with them.
There are lots of people you know and don't want to be friends with, and there are people you become friends with even though you barely know them.
This is because friendship arises from interacting with each other in a shared situation.
For example, you chat with someone because you're both at a boring party. You play video games with a group and hit it off with some of them. You have a cooking class with people. You're stuck on duty for 8 hours, so you chat with the other guard. Whatever. You're in the same situation, so you can interact with a meaningful context.
That's how you become friends. Not by knowing their torrid past, but by get along in a shared situation.
Why don't games do that?
Well, firstly, backstories are cheap and easy to pace.
More importantly, "shared situation" is a loaded word. See, in games, the only "situation" that the player can "interact" via is the gameplay. For example, the combat.
If the NPC has a lot to "say" in combat, that usually means they're derailing the player's plans. Basically, it's an escort mission.
Ah, escort missions. Some of you may not even remember the era where those existed.
"Wait, wait, there's loads of games where NPCs support you in combat and aren't annoying or derailing..."
Yeah, because the AI has been blunted down to the point where the NPC is less like another player and more like a tree or a rock. They exist to support you, not to interact, not be themselves, not to share the situation. In Dragon Age: Inquisition, if you give two characters the same abilities, they will perform precisely the same way in combat. Because it's not about them being them, it's about them being reliable.
Bioshock Infinite was a huge example of this, where the Disney Princess character was theoretically in the same situation as you, except she couldn't be hurt, trapped, sidetracked, or in affected by combat in any way. Similarly, rather than having the same goal of "killing dudes", her goal is to pick doodads up and toss them to you.
She's not sharing the situation. She's just in the same place.
Over the decades, we've become experts at removing the character from characters. They never do anything characteristic in gameplay, because that'd screw up the player's agency, make them annoyed.
In turn, the only way they can distinguish themselves as characters is through dialog snippets. And king of the dialog snippets is the backstory.
Well, that's no good.
Dragon Age actually has a partial solution: if you can't make the characters express themselves while sharing the combat situation, how about while they share a less pressing situation, such as wandering the map? While you explore, they'll chat among themselves!
Not a bad idea. There are plenty of low-stress gameplay moments in RPGs. Why not allow the other characters some freedom?
But dialog snippets just aren't going to cut it, not least because the player can't respond to them. Pausing the game for a dialog popup would interrupt the gameplay and be just as annoying as a character doing something dumb in combat.
In order for this to work, we need a way to allow the player to subtly and fluidly interact with an NPC's characteristic actions, and we'd want to have more characteristic actions than simply chatting.
A big part of this is to spread the work. If your party members interact with each other a lot, you can get a feel for who they are without being interrupted. They are obviously able to respond fluidly, since they're programmed to do so. No need to pop up a response tree.
When they do interact with you, or you need to interact with them, a very simple, fluid response system would be best. Rather than potential lines of dialog popping up, I'm thinking you just have a few different "moods" - maybe just two. Neither is "wrong" or "right": the choice doesn't matter in any grand sense. You're just interacting with them in a simple way to drum up a relationship.
Alternately, that idea might be fundamentally the wrong direction. Instead, how about every time you go to a town or whatever, you actually deploy your party members to go shopping or exploring or looking for people or whatever. They keep coming back to you with progress reports, and you can interact at that time.
Altalternately, you can play down player control or introduce intervals where the player doesn't have to keep tight control. If the player isn't interested in maintaining control over a situation, then the NPCs can inject their own choices into it without screwing the player over.
Altaltalternately, you can have the NPC be the one providing the play and therefore also responsible for how it unfolds. By putting the NPC in control over specific facets, you can trade off control with the player at regularly defined intervals. For example, the NPC might pull you from place to place, but in combat be reliable and staid.
I don't have a good answer, but I can tell you one thing:
NPCs in my game will not have important backstories. They will be defined 100% by interacting with you, and 0% by dictating their past to you. At least that way you'll be involved.