That's the automatic NPC to NPC conversation system. Conversations are made up of statements and responses -- there are tables that match them together based on all sorts of conditions, basically giving NPCs the ability to have conversations with each other without having them all be 100% scripted. These conversations are sometimes random, idle chatter, but most often they're talking about stuff that's going on in the game's world. For example, you'll hear people talking about events in the main quest, and that chatter will change as you progress through it. In addition, folks will gossip about things, and you can listen in on those conversations to get hints about miscellaneous quests, interesting places to visit, where you might find trainers of certain skills, etc. You'll also hear guild-specific NPC to NPC conversations in the guild halls. So the chatter is different in different towns, locations, and varies as you play the game. And when you hear something interesting you can usually talk to the NPCs to find out more -- it often leads to a quest. It pays to wander around towns and listen in on what folks are saying to each other.
