As all skyrim players know, dragons and vampires ocassionally attack vilages/cities and sometimes they kill various named NPCs that are surely involved in some quests (or perform duties like selling horses).

So what happens to the quests related to those NPCs when they die to some random dragon/vampire attack?

Do those NPCs respawn after a while, so the quests can be normally completed/progressed?

Or are those quests no longer functional due to the NPC dying to a random dragon/vampire attack?

I would be really really disappointed if a meaningless dragon/vampire attack can break quests by randomly killing town NPCs that are not "immune to death/essential"...

Not many quest related NPCs can be killed. Any that can be killed... well... the quest fails...

Named NPCs do not respawn.

Yes that can break quests. I've gone back to Balimund with his 10 fire salts, to find him dead next to a vampire.