A group of friends and I have decided to play D&D. Since I was the one gathering everyone and the one with the most previous knowledge, I became the DM for the group. I had never actually played before, but I have watched a a lot of D&D-related content. (I don't have any experience playing other role-playing games.)

We've played a session in which I organized a little one-shot to see if everyone was going to enjoy it. Now that we've decided to continuing playing, I'm tasked with creating a world for them to play in.

When creating the world, should I focus on developing the structure of the towns and regions, or the individual NPCs? In other words: Which of these is spending time on is likely to get a better return on investment: locations or NPCs?

Your focus: Having Fun!

The only real goal there is when DMing is to make sure everyone at the table (including you) are having fun.

What is Fun?

Well, that's going to be pretty table dependent, but that's also where having a Session Zero (and being the DM for it.) But gathering folks to talk about what they want to get out of it and what you do can definitely help guide you.

And don't be afraid to change course when things aren't working. Being honest and up-front about that is important. I had started up a campaign and heavily focused on difficult combat, but the players were newer and I wasn't sure they were enjoying it. So I talked to them about it and we came up with a plan to more slowly get them into more tactical combat when they had better command of the rules and their characters.

Planning (and lack thereof)

This is another area where you'll get a lot of opinions. Personally, when developing a homebrew world I come up with broad strokes. Large maps, key players and problems, and my overarching theme/story arc. Once the players start interacting, I start improvising a lot. I want them to impact the story as much as I tell it, and that means thinking on my feet. Keeping too strict a story doesn't work for me and that's not generally how I want to DM. But others can, may, and will differ - and that's okay!

You've got some more leeway in planning locations more than PCs as you can better improvise characters than maps - but concentrate on the physical locations they are currently in are very much seem likely to go to. If they go somewhere you're not prepared for, don't worry about it. Keep it off-map until you have time to build a map for it. It's hard not to stress, but it all works out. Players understand you can't plan for every eventuality and as long as the story is fun and the table is having fun, lots of leeway will be given.

Homebrew or published

I haven't played a full published adventure...maybe ever. That's a personal choice and maybe you're in the same box. It's a big step to come up with a big storyline and world. If you aren't comfortable with it, maybe start with a short published adventure to whet your chops and see what you like, what you don't like, and help provide new ideas.

But it's perfectly okay to come up with something entirely on your own.

The key is having fun. As long as everyone is, you're doing it right :)

You may want to limit to just official/standard content to start with until you are comfortable with playtest or 3rd party content. This lets you play within tested rulesets.

Session planning

Just to be clear, I do plan on encounters in a session. But I generally make a couple that I think they may go with and have a couple in my back pocket for things I can use if they've gone in entirely different directions. I try and not railroad too much, but as you tell the story, the 'railroading' may happen as they follow the hooks you've provided.

Be prepared, but don't prepare too much.

This is a broad question, but you can find a lot of excellent advice on starting a campaign in the Dungeon Master's Guide. Technically, you can run a campaign without this book, but it's strongly recommended.

My personal advice, however, would be don't create more than you need for the next session, and be prepared to invent on-the-fly.

A lot of D&D web series really give the impression that the DM has their entire world and story planned out ahead of time. Here's a DM secret: they don't. DMing is less like writing a novel, and more like the scene in Wallace and Gromit where he's continuously placing new railway track just quickly enough to keep up with the train.

When you do create background for your world, focus on the things the players will encounter. A mistake I've made is to spend hours on obscure details of world history that the players will never see.

D&D 4th edition's Dungeon Master's Guide didn't even give a campaign setting, but only created a vaguely defined starting area, the Nentir Vale, and gave DMs the opportunity to add new content as and when they needed it.

The D&D 3.5 Dungeon Master's Guide has some great advice as well. In particular:

Start small. Set the first adventure in whatever locale you desire, give the players the information they need for that adventure, and let them know just a little about the surrounding area. Later, you can expand on this information, or the PCs can explore and find out more firsthand. With each successive playing session, give the players a little more information about the campaign setting. Slowly, it will blossom before them into what seems to be a real world.

Another piece of advice from the 3.5 DMG is the "Inside Out" approach of worldbuilding: start with a small area, even just a single village with a dungeon nearby, and only expand as needed. Decide the community who lives there, have enough combat or adventure for the next session or two at any given time, and expand on it later depending which direction the PCs go. The advantage here is that you save a lot of effort, but if you plan more

I also recommend you have at least a few NPCs to draw upon whenever you need an non-combat encounter: a big list of names, some with details of description for the PCs to remember them by, and some defining personality traits. You don't need full stats unless they're going to fight. There is a phenomenon where NPCs invented on-the-fly tend to mysteriously share the DM's own personality, and all end up rather predictable, so you need a little NPC planning at least. There are some tables you can roll on in the Dungeon Master's Guide for this sort of thing.

I also recommend Matt Colville's Running the Game series on Youtube, if you haven't already. Check out also the Donjon RPG tools for some convenient random generators.

Both are valid approaches. You won’t get any advice that one is objectively better than the other.

Your setting will need some of both—you need places for your NPCs to be, and you need NPCs to populate your world—but which one you focus on will give your campaign a distinct feel.

At the risk of saying “water is wet”, NPC-centric campaigns tend to be more about people and their motivations and discovering their secrets, and place-centric campaigns tend to be more about moving through the world and discovering its secrets.

Which one you personally gravitate towards is likely your best choice. Build with an eye to what you enjoy, and DMing will be just that little bit easier.

You’re not locked into your choice, either, especially if you avoid the temptation to over-build before the start of play. DMing your own setting is a continuous process of creation, so you will be building more as you go, and can easily switch your focus if you ever have the need or desire. You may find that during play your players are distinctly interested in one or the other, and you may tweak (or entirely switch) your focus from place to people or vice versa in response to that.

Some adventure premises also lend themselves more towards one or the other. If you set an adventure in a primeval forest, you might focus on place with a few (or even no) supporting NPCs; if you kick off a town adventure, you’ll want a notable cast of characters supported by a few locations that highlight the NPCs. Switching that up can also be interesting: a situation that’s unexpectedly heavily about people in the wilderness can be an interesting change of pace; a social context that turns into an adventure focused on a mysterious place that forces people to put aside their social conflicts can be too.

There’s no right answer, only choices and your and your players’ tastes. Experiment, and enjoy!