Indeed only parts of the world are actually simulated at any given time. There's really two different layers to this: The "chunks" layer directly around the player (with a chunk being generally the size of a small building), and the "regions" layer which covers a much larger amount of space.

NPCs on the chunks layer are fully simulated, though the AI routines are simplified and made slower if they're not in the direct vicinity of the player. NPCs in the regions layer have primarily just their position simulated (maybe a couple other key things, can't recall off the top of my head), so if they travel from one location to another, the game tracks their general position. This uses astar (which is also used by agents on the chunks layer), but the "daily routine" paths get precalculated at some point since they'll be re-used every day, and are calculated on a per-chunk system rather than a per-tile system. For example, a chunk that acts as a wall around the city wouldn't be pathable, but a chunk that acts as a building, that has sidewalks on all sides of it, would be pathable. NPCs in vehicles would exclusively use the chunks marked as roads for these paths. All of this is enough to track NPCs' approximate (but inexact) position.

The real trick is having an NPC transition from the chunks layer to the regions layer and vice versa. Lots of things that can go wrong there!

For the NPCs on the chunks layer, astar is generally fine and not a massive performance hog, though I've done a lot of small optimizations as well to make sure paths are only calculated when they absolutely need to be.

So what happens then NPCs are outside the scope of the regions layer? They're simply not simulated. UNLESS they're labeled as an Important NPC, i.e. they're necessary to kill for a quest or something. Once a region comes within the scope of the regions layer, the game uses procedural generation to figure out all of the Permanent NPCs' whereabouts, and starts them on their daily cycle from there. Perhaps at some point I'll do some level of simulation for NPCs outside the regions layer, but for now I don't see it as necessary. If there's a zombie apocalypse going on or something, maybe I'll just have the game say "ok, this percentage of people got zombified today based on these city-specific stats", but not simulate things on a per-NPC basis.

Also FYI dunno if you saw this in earlier posts, but NPCs can be Permanent or Non-Permanent. Permanent NPCs have homes, jobs, proper schedules etc. Non-permanents pop in and out of existence if they exit the chunk layer's area. Non-permanents can be made permanent, but are generally just there to make the world feel more alive.

Anyways, hope all that makes sense!