The time system used to be calculated in real seconds, so that every 35 minutes it would switch from day to night. I transitioned away from that because it was a little too jarring and could sometimes interfere with cutscenes. So now, time progresses only when you exit or enter a new area.
However, this new time system does NOT use the same boolean that the old time system did, so if I had shipped a beta like that, any time-based event would not occur, which means the majority of NPCs would be completely missing! Since I test all of the NPCs and quests using developer tools, I have always just changed the time of day manually instead of letting it naturally progress, so it's likely I would not have seen this for a while!