@sun I think it could be especially fun for fleshing out backstories. Especially as context windows expand.

e.g.
you could put a general history of the world in the context window, as well as the history of the specific area for the character, and the backstories of existing characters. Thus the NPC could have traits customized to the location and surrounding NPCs.

It could be done in an iterative approach such that basic attributes are made first (e.g. occupation: butcher) and then relationships could be made (rivalries (between 2 butchers), co-operation (butcher and farmer), etc).

You could even create quests based on these relationships (e.g. help butcher 1 or help butcher 2)