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Life in Karigor comes in three flavours, not counting the party. First of all, there are citizens, that will generally have a dialogue, and cannot fight or be fought. Citizens in the game have numerous roles, ranging from questgiver to shopkeeper; some may combine several roles. Secondly, the party will encounter monsters. While some of these may start out neutral towards the party, all monsters can engage in combat. Finally, animals and vegetation are mostly scenery, but may on occasion have some other purpose, like providing food. They cannot be fought.
A few entities have both a citizen and a monster form, where they initially have a civilized dialogue but turn hostile later in the game.