NPC stands for a non-player character in a role-playing game. The term can mean two different things, though both meanings stand in opposition to the meaning of "player character". Firstly, in role-playing games in general, it can refer to any character who is not controlled by a player (but rather the computer or the DM). Secondly, in computer role-playing games like Baldur's Gate, it can refer to the characters who can join the player's party and be controlled by them, but are not created by the player and do not represent the player personally. In the latter case, the player usually has full control of the NPCs for most of the time, but they may exhibit scripted free will at specific plot points, for example withdrawing cooperation when the player makes a particular choice that the NPC finds especially objectionable, or starting a fight with another NPC (in either sense of the term).
It should be noted that though the second meaning of NPC as potential party members is often used when talking about the Baldur's Gate games, their own manuals use the term in the first, broader sense.
In Neverwinter Nights, the term used roughly equivalently to the second meaning of NPC is henchman. These henchmen accompany the player character and can be given orders, but only general ones which they follow by their own AI.