I think part of the reason the game feels so expansive and lived in is that you never explore the ENTIRE world. This gets away from some of the needs of most RPGs where you need the port town or multiple huge towns in 3 kingdoms etc, etc. By doing this, they could really expand the areas between towns/settlements and have the more subtle shifts in climate.

I wonder if the game were to be made today if it would just be one huge seemless landscape. It really feels like that is what they were going for but the limitations of the PS2 forced some compromises.