Note that "DM" was mentioned, so I'm strictly talking about D&D here, other games and genres focus a lot more on the narrative aspects of RPGs in a planned mann

Note that "DM" was mentioned, so I'm strictly talking about D&D here, other games and genres focus a lot more on the narrative aspects of RPGs in a planned manner (NB: Although I personally would suspect that the "AI"s we got might do even better at PbtA games than D&D) Here, at least since mid to late 3rd edition, we got a very strong focus on combat "encounters", where you got pre-packaged situations where combat would arise. A combination of monsters, location and possibly events happening during that time. Monsters might even be built for this specific situation, even though their names are generic enough (i.e. a "Orc Battlescout"). Your dungeon FSM gets to a certain state and this encounter gets triggered. Whereas the canonic ideal of older games was a more fluid setup. Often described as "Combat as War" vs. today's "Combat as Sport". Sure, played very simply, you got an even less sophisticated environment: Room #13 has 4 orcs, guarding a chest, which has 380 copper coins. Kick down door, fight orcs, spend coins on torches for next dungeon. But no experienced DM sees a dungeon that way. Because next to that, you got room #14, where the orc chieftain is preparing the prized pigs they stole from the goblins in room #27, which are currently sneaking up to get it back. Then, as you say, you might have your random encounter, so while the players are heading for the orc room, wolves attack (the goblins aren't guarding the wolf-forest-gates, the DM muses). The fight makes a lot of noise. The orcs look. The orc chieftain looks. The goblins use that distraction. The characters might notice that or not, etc. Even rather simple setups can achieve rather complicated results, if you're not emulating a 12 year old mastering their first adventure where they just picked monsters from the tables in their Dungeon Masters Guide that are appropriate for a level 2 party of characters. That's a bare minimum where I'd consider a "AI" DM-like, otherwise you mostly got a NLP interface on gameplay that I could've had with the old SSI Gold Box games on an C64.