So there's a few ways they could have implemented this:
1. The way they did. When the player enters the village it's a ghost town state. The player finds the quest NPC on their minimap, runs to them and they put the village in the on fire state. The player then competes with other players to save villagers and once they save 5 villagers the town is put in peaceful but slightly singed state and the player gets some reward.
2. Slightly improved, when the player enters the village its in a on fire state. The player is notified either through a quest NPC running around asking players to do shit (annoying), a UI element that pops up saying what to do ala GW2 (easy but immersion breaking) or by the villagers running around on fire asking in say (with or without chat bubbles) for help (best way as its integrated into the game world). Bonus points if said villagers die if you don't help them.
3. The zone-integrated dynamic approach: there is some enemy faction centered in some area that periodically fucks over the local villagers. If they get powerful enough where they light fools on fire they will send 20 NPCs from their base of operations to the village, if they successfully get there they will start lighting shit on fire and the village goes to the 'under fire' state. If they successfully light stuff on the village will go to the 'on fire' state. If no players come in some period of time the village goes to the ghost town state which involves some rebuild quest. If local players rebuilds, puts out the fires, or kills the NPCs that are lighting shit on fire the village goes to the peaceful state. It doesn't matter who does it, just as long as it gets done.
#1 and #2 are very similar, just #2 is more well thought out. #3 is what GW2 attempted to do (and successfully did in many instances) and it's a huge disappointment that TESO didn't attempt to follow those footsteps. #3 gives the world life, meaning and a constantly changing environment. It's also hard, time consuming and requires talented developers.
My big problem with the PVE in TESO is that when they choose between "Living breathing world with players being able to impact it." and "Instanced world with players being able to only impact their instance" they chose the latter. In doing so they stripped out the heart of TES and the heart of MMO and merged a soulless abomination together.