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It's hard to come into a situation with more than the minimun amount of NPCs, so the number of background characters does become kind of useless. As far as Detail go, this is mostly seen in combat, not walking through cities.
To be fair though, you never get to see or happen to be in a situation that demands more than 75 characters to be on screen, much less 150 which is for the Ultra setting. It's really hard to imagine noticing a tangible difference in that regard. (Performance also suffers practically zero from this option).
Novigrad may be an impressive and immersive city, but it's really hard to find any place in it that remotely gives the impression of having more than 50 people at once.
Raising it up to high (Didn't go Ultra, no point..) solved the problem entirely.
The issue with NPCs popping in and out of existence is unrelated to the Number of background characters actually, and it's a consequence of poor LOD textures and mip-mapping. Setting it to ultra doesn't get the rid of the issue, and it's actually a very common issue with the game. 1.07 should be correcting this however, according to patch notes.
Performance here is all based on your CPU and not your video card. If there are 150 background actors, the game isn't rendering them unless you somehow manage to wrangle all of them into your camera view.
It is however running their AI scripts and barks and then calculating if you can hear them, etc. All CPU bound stuff.
If people get stutter in Novigrad, this is the first thing to turn down before messing with anything graphics related.
EDIT: I should add - you're more or less right about the population density of Novigrad, but I have noticed an improvement dropping this setting down on my wifes older i5 2500k. Completely eliminated any stuttering she was experiencing running around.
Never said it wasn't.
Again, there isn't a situation when there really is that number of NPCs near or around you. (Don't know about the sound there, as in, I doubt the game is ever modulationg the sound effects for hundreds of different NPCs, I feel it simply uses stock sounds for the different parts of the city).
Haven't noticed any performance difference in this regard myself. Stuttering in Novigrad seems to be a fairly common issue all around, even present on top notch PCs.
As someone stated above, this setting has been tested in different ways and, throughout the internet, the common consensus is that it really doesn't change anythning tangible, even the Geforce optimization guide states the team couldn't find any way to test this as far as performance goes.
And my anecdotal evidence contradicts your anecdotal evidence. I lowered this setting (and only this setting) on my wifes i5 2500k and all the stuttering she was experiencing in Novigrad disappeared.
Also for those that where having bugs w/ hairworks at luanch try it again its been working really well for me and with all the talking heads in the city I've seen its benifit much more than the beggining part of the game. Dandelions hair looks particulary good w/ it lol