So I was wondering something about OOO:

Does it force npcs to level up with you? Like, for example, in Dragon Age, you will always fight against ppl your level no matter what part of the game you're in. Does OOO force this to happen?

No, that's how the vanilla game works. OOO makes the game more unlevelled, i.e. you can face high level enemies from level 1. But it's not completely unlevelled. Check http://www.gamesas.com/index.php?/topic/820948-scaling-overhaul-comparison/page__p__11934228__fromsearch__1&#entry11934228 for a sum up of how it's set up.

I did encounter enemies in Sideways Cave on level 5 that weren't there on level 1 (a shadow wolf and a troll), but the bosses were the same, and still able to kick my ass without breaking sweat..

Thank you for that clarification!

One more question:
If I set the Game Difficulty as harder within the Gameplay Settings, that will give me more valuable loot when I kill NPCs, correct?

No... with that option, harder just means harder. It doesn't give any more reward.

I would strongly suggest if your new to OOO to use the http://devnull.sweetdanger.net/OOO/OOO_133_readme.pdf
It's also a good idea to post your questions in the http://www.gamesas.com/index.php?/topic/1089759-relz-oscuros-oblivion-overhaul-133/

Advice: Dont touch the dificulty slider. If you do, creatures and NPC do more damage and you do less. You will find this very anoying and non realistisc later, when you have full plate armor and two handed axe and you have to run of a goblin and you can see a farmer with dirty clothes and only their hands killing him. If you want more challenge is better you do a fast search for combat mods.