Most NPCs are simply part of the program. When a GameMaster takes control of such a character, it is referred to as a GM-animated NPC. Mechanically, a GM-animated NPC is similar to a talking critter.
From a role-playing point of view, the distinction between PCs and NPCs is artificial. Characters simply see each other as people and have no way of distinguishing between those that are controlled by players and those that aren't. However, some players use the term "adventurers" to refer to PCs in an IC manner.
GMs can also create characters that are mechanically similar to player characters. (For example, the PROFILE command works on those characters when they are logged in.) Such a character is referred to as a GMNPC (GameMaster non-player character) or GMPC. (The terms are interchangeable.)
GMNPCs are used by GameMasters to flesh out story lines, adding a certain amount of GM control over the plot within DragonRealms.
A GMPNC's appearance is similar to any other adventurer's, although they may have access to special descriptions or features that are not available to players.
PvP is expected against certain GMNPCs, such as generals or otherwise leaders of groups that oppose adventurers. These GMNPCs sometimes openly attack settlements.
At the other extreme end are GMNPC alterers. These GMNPCs should be respected, and players are expected to remain in character with them. Remember, alterers are GMs, so they hold a certain level of authority, and they probably want to have fun doing even when working.
Some GMNPCs have a political affiliation, and others were created to only be around when a GM is controlling them. A GM can take control of regular NPCs (such as guild leaders) for events as well.