An NPC is a Non Player Character. That is, any character in the story that is controlled by the GM (as narrator) rather than by a player.

NPCs are created by the GM as part of the narrative, and may or may not be friends, allies, enemies, etc of the player's characters or of other NPCs. Some NPCs are developed as full characters with their own character sheets, attributes, inventories, etc. Other NPCs are basic “shell” characters such as “Shopkeeper”, “Guard” etc.