As much as you want is the answer. In my games, I like a good dose of reality that reflects in a warp/pseudo image of history. When you walk into a village you’re going to be greeted with suspicion, but met kindly. There will be a reeve in charge of getting things done. There will probably be a woodward and possibly hayward. Yeoman will be present and I do like to throw in a village militia once in a while, but in general the villagers will have little to no experience with fighting. They will farm the land, tend to flocks and celebrate festivals. I don’t get into too much more reality detail, but enough to give the players a sense of grounding.
But this is a fantasy game with spell slingers, big green monster that eat people’s feet and the small gray critters that tear apart crops at night while they villagers sleep. So, for villagers to survive a world with such thing, they have to be tougher, and maybe a few of the villagers are ex-badasses. I seem to always slip in an ex-mercenary into a village. Got tired of the fighting life, met a beautiful girl and settled down. He keeps his sword wrapped in a blanket, in a locked chest, that he gets out every few months to remember what it felt like to hold it in his hand.
Once in a while I’ll mix in a more magical element. Maybe there is a mage nearby whose studying the magical properties of poison ivy on snakes with three eyes. But since he needs food and likes a pint of ale once in a while, he is friendly with the villagers and will help them out once in a while. Or maybe there is a critter in the forest that has adopted the village. Maybe a gray renderer. So when half-orc bandits ride into the village thinking it will be an easy target, the gray renderer opens up a large can of whoop ass on them.
In my game, it’s important to have a balance. I like adding in historical details. Especially since I have an exceptionally intelligent group I game with, they pick up on the details quickly and understand what they mean. Some of the puzzles or mysteries they encounter will be solved with the knowledge of both knowing the reality (historical) in combination of the fantastic elements.
Even if you run a gonzo game where nothing is off limits, I think it enhances the game with some reality checks. Say your land is getting overrun by zombie werewolves who are wearing exo-skeleton they found on a crashed alien spaceship that was shot down by the invisible Illuminati laser. Add swastikas on the armor and all of a sudden you’ve added another element people will recognize. Now you have all the above with Nazis added. Your players are going to grab an extra tactical nuke for their z-28 that has a cassette player with volume knob ripped off at full and plays White Snake songs constantly. Sign me up!
So reality…it’s what I add to my fantasy, not the other way around.