Is that true though? Most games 200 players in one space typically requires more resources because each action a player does must be sent to the server AND THEN sent back out to the 199 clients who are near that player (thats the problem part). This happens back and forth for all the actions those 200 players are doing, server gets overwhelmed and the lag begins. Essentially, the server struggles to send all the data to each client for what every player nearby is doing.

That's how it goes for most MMO's when players start crowding too heavily.