In LARPs, the distinction is that "player characters" are created by the people playing them and are free to do whatever the player chooses to have them do. "NPCs" are played by actors, not players, and while they have to improvise, their role is set by the game master and they have scripted actions at certain times and events.
Remember, a GM is also playing a tabletop RPG with his friends; all the NPCs are controlled by him, so they're "played" by a player, even though they're non-player characters.