I think it has its place. For 'background filler' I think it makes a lot of sense; stuff which you don't need to care about, but whose absence can make something feel less real.

To me, this takes the place / augments procedural generation stuff. NPC crowds in which none of the participants are needed for the plot, but in which you can have unique clothing / appearance / lines is not "needed" for a game, but can flesh it out when done thoughtfully.

Recall the lambasting Cyberpunk 2077 got for its NPCs that cycled through a seemingly very limited number of appearances, to the point that you'd see clones right next to each other. This would solve that sort of problem, for example.