With this flag on, go up to any NPC and hit Y to remove them from the map. Any screen transition will reset any “removed” NPCs, but you can remove them again.
NPCs are not limited to just townspeople. You can remove monster NPCs, various random objects, locked doors, and even invisible barriers.
Note that any removal of boss NPCs that result in skipping the fights entirely will also bypass any rewards resulting from that fight event. It is possible in some cases to soft lock a seed if you have skipped these fights but are required to acquire certain Espers, kill certain bosses, or complete a certain number of checks.
Y NPC provides access to:
Potential soft locks or other unrecoverable checks: