Mirtek said:
However this leaves the question: How do they pay for it?
You're absolutey right--that's a very important question, and an interesting one too.
Based on a real medieval model, the main method of payment for villages would be:
1) Grain and fish (fish can be salted to last for months)
2) Wool
3) Low-level home industry (particularly spinning, but there are other possibilities as well, e.g. the merchant drops off 200 lbs of clay in the late summer and when he returns in early spring will pay 2 cp for each pot the villagers have fashioned out of the clay according to his instructions).
Expanding a bit from the real medieval model:
1) Woodsmen, who might have lived in small homesteads in the real middle ages, would need to live in the security of villages in a PoL setting. They could sell valuable furs, hides and even monstrous trophies, such as a dire-wolf pelt or wyverns' teeth (presumably scavenged rather than taken from a kill, though if the woodsman is a PC-classed ranger, you never know...).
2) If you're going with a medieval model, most villages will be manors and will have a small cohort of men-at-arms. A good number of the wealthier peasants will also be trained militiamen (probably longbowmen or pikemen). They can offer their services as mercenaries, serving as caravan guards for a season and then returning to the village the next time the caravan stops there. A medieval man-at-arms, in particular, can command very good wages as a mercenary.
3) If the village has any spell casters/artificers/magewrights or similar, they can spend the winter crafting magical items that can be traded for food when the merchant caravan comes round in spring.
4) Depending on how dark you like your settings, villages will have lots of healthy young lasses and, well...you know about the oldest profession, right? Seasonal brothels could do a booming trade with the mercenary outfits guarding the caravans.
5) In a fantasy world, some PoLs will likely have access to magical assets (e.g. an enchanted forest that produces apples that restore 'second winds' when eaten). As such assets will often be unique, they could be very valuable.
6) Again depending on how dark you like things...slaves. If the village manages to capture an orc warrior or two when the Red Arrow tribe raids their village, then those orcs could probably be sold for a good price when the merchant caravan arrives.
That's just off the top of my head. I'm sure that with good brainstorming, we could come up with a lot of other ways that villages could pay for the caravans' wares.
EDIT: I see that others have also come up with good lists of stuff villages can offer.