For NPCs that never leave the town or the district, is there any reason not to use the No Low Level Processing flag for them? It would speed up the game and I cannot see a reason why not to use it?

No low level processing means that NPC's do nothing when your PC isn't around. This means that their AI packages won't work, so if the NPC is supposed to eat in the inn at a particular time, that won't happen. No low level processing is usually used for dungeon bandits and the like. The UOP sets the flag on a bunch of NPC's, so you might want to check it out to see when it's used.

But when PC isn't around it doesn't matter if they execute their AI package since PC isn't around to notice anything anyway. So I cannot see a reason why not to use the flag... It would only make the game faster if used.

Not so fast. Actors in low level process only run their script every game hour (2 real world minutes, with the default timescale 30).

Disabling them will increase your game performance by less than 0.001 FPS.

Generally, no low-level processing should be set for NPCs who never leave their starting cell. Otherwise, the NPC won't process their AI in the background, meaning they'll only move when the player is nearby.

Good way to explain it 'Shroob.