In relation to the NPC encounters.
The more players on the server, the more lag.
The more players, the more NPCs that spawn since there are more people in different places.
Thus as the number of players increases on the server, the number of NPC encounters is reduced automatically by the server to help combat the increased lag.
From what I know, NPC encounters are based on each system file. The occurance or chance of occurance are specified there I think.
One of the other modders ought to be able to give you a better answer, encounters were never my specialty.
