Skyrim's got NPCs like a dragon's got scales. Which is to say: it has many. Spend a bit of time with them, however, and you'll start to realize that Skyrim's NPCs are a bit dumb. They're not strategic masterminds, they're often foolhardy, and they don't really do much with their spare time. The Immersive Citizens mod is here in an attempt to give their brains a bit of an overhaul in everything from fighting, to choosing not to fight, to everyday activities.
First off, the survival instincts of NPCs has improved, in as much as they now actually have some interest in not dying. If you've ever gotten into a skirmish in a city, you know what I'm talking about. Not only do guards come running, but regular unarmored citizens foolishly brandish weak-ass daggers in a misguided effort to take down the famous and ultra-powerful Dragonborn. What are they thinking?
They're not thinking, of course, but now they'll at least make a little logic check before going toe-to-toe with you. They'll compare their level against yours, check the status of their health and determine their resistance to physical damage. If the odds are stacked against them, they may choose to flee, and even try to hide in a random location like a nearby house, mine, or tower.
I stirred up some trouble in Whiterun to try it out. Even though the guards swarmed me, none of the townies did, even a couple who had real weapons. And why would they? I'm famous because of all the dragons I've killed. You don't fight me unless you have to (or you're paid to).
Don't worry, this doesn't apply to all NPCs, so not everyone will run simply because you're a high-level character. Most NPCs have been assigned ranks and personalities by the mod. While some will flee when they sense they're overmatched, others will still try to fight you to the death no matter what, and some will try to improve their odds by retreating from a fight to allow themselves to heal, then returning to continue the skirmish.
Some NPC combat styles have been tweaked as well, particularly among those who attack at range like archers and mages. Rather than simply giving up their ranged attacks when you get close, they'll work harder to keep you at a distance and use cover if there is any.
I tried this out on some bandit jerk and he was definitely making an effort to keep me away from him, backpedaling a lot and edging out in and out of the doorway to the fort we were fighting in. Good for him! Also, he's dead now.
When you're done killing NPCs, head to the nearest town, where you may notice the citizens have gotten a little more interesting. Local hunters will actually loot the animals they kill, priests will spend time praying, and citizens will actually leave their towns for errands or pleasure, even choosing to ride horses if they're planning to travel a good distance. If it starts raining they'll move indoors, they'll have more frequent conversations with each other, and they'll even shop in stores, so for once you won't be the only customer in all of Skyrim.
There's a really massive list of tweaks and changes on the mod page. The mod is a work in progress, and there are some more changes on the way. I've played with it a bit, and a lot the changes are very subtle, but I have witnessed some of this enhanced behavior and it does make a difference.
The mod requires Dawnguard and Dragonborn DLC to run.