One thing that is really useful about the distinction is that almost necessarily, there are different scales involved. Ultima VI was the first of its (mainline, not 'online' or 'underworld') series to not really have the "town/dungeon/overworld" distinction. It got fairly awkward to have towns and the overworld be on the same "layer", because the towns could really only have a dozen or so buildings because otherwise…
I don't think the idea of realistic scale for video game locations is very attractive. You can have vast worlds with huge procedurally generated towns. Daggerfall did this and to me it just felt like boring filler. As did its enormous landscapes. You can have large towns dense with interesting hand crafted places and characters. Baldur's Gate itself from BG3 is a great example. I loved it, but it consumed 50 of the 1…
I had the idea first, when I was 8 years old and first played a video game. It just gets re discovered