LagunaXI has written a very good article, Ideas To Make Your NPCs More Interesting, which explains this problem perfectly. Here's a sample of it, a few paragraphs taken at random.
What do you mean place a random statue in the town!? Well let me explain. This is just the comical sub heading of my point, it doesn’t HAVE to be a statue it could be anything. A gravestone, an old abandoned shack maybe an old well. Something that has no real significance other than to be there. Not only does it provide a little back story to the town but more importantly (for this article) it makes an interesting talking point available for NPC’s living in the town. I’ll give a couple of examples.
Say I place a statue of a warrior in the middle of the town, some of the examples it opens up NPC Dialogue wise are…
“This statue was built when my Grandfather was just a small boy, so it must be pretty damn old huh?”
It's worth reading through the article, as it'll give a few additional ideas on how to bring NPCs to life and add dimension to a bustling town or city.
