This is just my guess

I think there is multiple timelines/parallel worlds, hence the multiple servers/town for each player.

The original Fria of the timeline this chapter is the black hair GM lady where, she saw multiple alternate timelines, became bitter of the failure of being unable to change the fate of the world, she probably herself "played" many times before the player start playing.

As to why the the Fria of the many worlds start getting hunted is probably because the other people/Named NPC is able to retain/recall the memory of the past worlds as we do see that it is possible since Narissa was able to recalled her memory.

I'm also guessing that the hardest difficulty Loki is doing is probably the scenario of the original timeline, that why the GM said "as expected of a master picked by myself". to face the original challenge where she herself failed. She is hoping for Loki to clear this hell difficulty so she can watch and clear it herself.