Interesting post!
I have two points to make.
1. I think that one of the reasons "fantasy" and "D&D" is so successful as a TTRPG is because it doesn't feature democracies. Why? Because fantasy worlds have autocracies (usually monarchies) that we can use without worrying about it too much.
And I think this gets to the heart of why monarchies and autocracies are so common in RPG games. The emphasis is on the game, on the conflict. And conflicts and stories work best with identifiable personalities.
Generally, people want to interact with a single point of contact- and rulers ... whether they are kings or queens, autocrats or generals ... they allow streamlined play and roleplay. They make the game easier to run, and for many tables, more fun to play. It's not just a trope of fantasy- it's a crutch of a lot of storytelling. It's easier to play when you're dealing with a small group of people or leaders, than it is with a sprawling democratic system.
2. I will note that GREYHAWK has all of the government systems, including various types of democracies. So if you're looking for political diversity, I have a setting for ya!