NPCs have a life of their own, but a PC sees only a very limited part of that life. Tracking the life of an NPC gives the PCs a more complete insight into a NPC when they encounter them. It is up to the GM to determine how much of that life is prepared and how much is improvised. However, having NPC motivations, drives, goals, quicks, backstories, and backgrounds makes creating NPC arcs a great deal easier.