NPC stands for Non-Player (or playable) Character. An NPC is any person or "living" creature in a game not controlled by a player. For example, any units in any game that would give you a quest, tell you what to do, or just stand there while you speak to them is considered an NPC.
In Ragnarok Online, NPCs are a pretty big part of the game. The Hercules scripting language is used to create NPCs. You can find many premade NPCs on the Hercules Boards. Any character you speak to in Ragnarok Online not controlled by a player is an NPC. From warpers, over healers and quest guides, to item sellers. Generally, in Ragnarok Online, a monster is referred to as a mob, and not an NPC, however they are technically considered NPCs as well.