Khur, the footnote on the table I quoted states that you can add the NPC level modifier to town inhabitants as well.
In general, that's completely irrelevent. Let's look at the math. We'll take a village of dead median size (651 people). Normally the highest possible level commoner is 4d4+1 (+1 for village). This yields a theoretical level 17 commoner, two level 8s, four level 4s, eight level 2s and something over 600 level 1s. Add even the highest possible modifier from the table you cited (pretending there's a swamp in the North for a +5) yields a theoretical Epic-level commoner of level 22. This changes the spread of lower-level commoners to twin 11th level, four 6th level, eight 3rd level, and if you're generous 16 2nd level, and still well over 600 1st level commoners. That's a change from 14 people over level 1 to at most 30. Oooooohh. Those orc hordes better go somewhere else boy, they're toast now! (yes I realise this means a similar change in each character class not just the commoners, I'm being hyperbolic to make the point)
Let's take Mr. Jim Bob Homesteader and pretend that we are using the official rules where you only get exp for killing things. A deer has a CR of 1/6. A Hawk (very popular food among european peasants) is 1/3. Rats are 1/8 and cats (killed enmasse because they were blamed for spreading the black plague) is 1/4. We'll pretend that he doesn't protect his own livestock from wolves and instead asks someone else for help. We'll leave out any other more exciting events that are likely to happen (such as the regular humanoid invasions the North is famous for, and against which every able-bodied adult is expected to chip in). We'll also overlook the fact that the average Rat will kill the average human commoner about 9 times out of 10* and pretend that the commoner is as capable of killing things as he would be in real life.
Jim Bob gets
50 xp for killing a deer
100 for a hawk
38 for each rat
75 for each cat
So that means that if he serves his family hawk for dinner 10 times he should be level 2. Catching 20 deer will do it also. Clearing 27 rats out of his grain stores would be enough. Let's mix and match: he kills one cat, eats 5 hawks, successfully goes deer hunting 3 times, and still finds the time to kill 8 rats, all before his 20th birthday (that's one exp-gaining action per 14 months if you're counting). And this is leaving off slaughtering cows (at half xp for being a low-risk venture even though the occasional kick which in real life breaks a peasant's leg will in D&D kill him even if the cow rolls minimum damage), hunting turkey or pheasant, fishing, the aforementioned defending his livestock from wolves, and standing with his buddies behind the village wall throwing rocks and spears at a goblin horde. Then there are the drunken bar brawls, maybe he gets drafted into a hue-and-cry, or the area has a bandit problem...
I dunno; I think that plenty of commoners would hit level 2 really fast. By extension, they'd be hitting level 3 with remarkable regularity. Toss in the optional rules for ad hoc exp, story awards, non-combat encounters, and mission goals, and they'll be rising through the ranks even faster.
Seems to me like it'd be difficult to justify mostly level 1 adults in
any settlement. Much less a dangerous one.
You figure a pack of lumberjacks (say a good camp of 15 men), needs to be able to survive for a week up against whatever shows up on the random encounter charts for their area. They don't need to kill whatever comes by, they need to be capable of hiding, bribing, or talking down whatever it is. Roll up a weeks worth of encounters, and see if the group would survive. Somehow, I really don't see level 1 commoners and experts existing for long in any fantasy setting.
*Comparing the two, a Rat has +2 initiative, +4 to hit, +4 to AC, vastly better saves, and only 1 less HP than the commoner. This means the rat needs to hit the commoner twice, the commoner needs to hit him once, but the rat goes first and hits on a 6, while the commoner needs a 14. Dead commoner methinks. Could even justify giving him the double exp award for particularly dangerous fights when he goes ratting, but we'll overlook this fact. And I don't even want to consider the cat, they can take down two or three peasants at once!