Someone that understands. Even without fully rendering the character, just handling the A.I scripts alone for a world as massive as the one in Skyrim would prove impossible, like I said, rendered or not. The dragons and NPC's will not be a persistent entity, RAM is finite on consoles and actually very very small, you cannot continuously store every movement of a beast that the player cannot even see, a beast miles away in memory, while still hoping to run game logic code, texture filtering, texture streaming, LOD.
Which brings me back to my initial point that you can't see any of this happening, you can make an approximation. Games like the X series, which simulate hundreds of individual ships and stations across dozens of sectors, or STALKER, which simulates not just many NPCs but also wildlife as well, only run full AI when you're in proximity, otherwise fall back on a mathemetically accurate but computationally much less expensive model. A specific example for X is that a battle between two fleets can bring many PCs to their knees in-sector, but orchestrating battles on many fronts is lag-free if you're out of sector. Same thing can happen here - we don't need to know that NPC X ran away from the dragon for 3.2 seconds before hiding behind a wall that was promptly destroyed, killing him, we need to know that the dragon can attack in Y seconds, and at X's current speed that gets them Z far away. A quick proximity check as the dragon eats X shows that the wall is well within range and thus likely to be destroyed, so roll a dice and replace it with a destroyed wall mesh. And while out of combat the AI doesn't need to be anywhere near that complex. All we need to know for a dragon attack to begin, for example, is an NPC's start point, their end point, and their speed. Their exact position can be calculated from that if required and then we switch to distant combat AI, which runs through the entire dragon attack in a few frames.
AI is complex because it's very difficult to make it believable, but when the player can't see what's happening the AI doesn't need to be believable, it just has to produce an accurate result. That can be done much, much faster.