[Disclaimer] This question pertains to a setting I am working on, so I put it in here, but it might also belong into General Discussion.
So we have numerous settings to play with Pathfinder and D&D 3.X, yet quite a lot of them don't really connect with the rules in a way that allows smooth immersion from 1st to 20th level. Depending on what the setting/your campaign focuses on, player characters will either surpass the majority of important NPCs in level and power at some point, or never reach the level of the setting's iconic movers and shakers.
Apart from that, we have the phenomenon of magic vs. the world's overall technological level. Even if spellcasters with spells of 3rd level and higher are rare, a lot of settings have them be a continuous presence for thousands of years, so there should be some impact on overall society other than "lives in his tower at the edge of a medieval town" or "we don't trust magic to do that for us here". Eberron tried to mitigate this problem, with questionable results, and in Golarion it's a question of where you are in the world.
Sometimes, the problem manifest itself without bad intentions from the players, it may start with innocent questions from new or inexperienced players like "Wait, they have three spellcasters of sufficient power here in town, why exactly is this drought a problem for the farmers?"
Maybe it is a question about how you approach the creation of a d20 setting, do you start with an idea, theme, or conflict? Or do you look at the rules and wonder what may be a possible backgroudn for those?
I am aware of projects that speculate on what a setting might look like if you take everything within the core rules at face value, especially with civilizations that last thousands of years we see in so many settings, the Tippyverse for example. The result however is something not appealing to everyone, and definitely nothing low-magic (which automatically invalidates quite a lot of classic adventure proposals).
So I guess my question is, is there a middle ground?
Can you create a setting that has more synergy or interaction with the rules as presented without going all crazy, or is it just not possible and you would be happier to just ignore the problems as long as you can?
The problem is balancing in-game logic with the rule of cool.
Magic spells and items allow for a wide variety of shenanigans, and create plot holes in a great many things when you think about the implications.
On the other hand, you want to have elements of a fantasy world that the players can relate to. Castles and pirate ships are just full of awesome, even if such things wouldn't make sense with the magic systems. Fighting monsters is cool, even if it is hard to think of how first level commoners could ever survive in such a world filled with such dangerous monsters. One could argue that monsters are rare, yet with pre-industrial population sizes, just the wide variety of monsters in four bestiaries should make the world a massive population meat grinder.
It all depends on how much suspension of disbelief you and your players have, and how important it is to have relatable elements in your setting.
I start with a theme, tone, and a few elements I'd like and go from there. It's always best to start small. Once you have an idea for a theme and tone, focus on one or two little details, figure out how they relate to one another, and then see the gaps they create. Then, fill those gaps.
I'm working on a science fiction setting that takes place in a computer simulation. At first, I wanted the setting to use Pathfinder RPG or d20, but I realized none of the content and constructs of the game really apply to my setting. Nothing in the game should have a constitution because every digital creature has no internal organs. It made little sense for there to be classes. Spells don't exist. Feats and skills would need complete rework. So I figured it would be best to make own my system.
The most important thing is that you and your friends have fun playing together, even if things don't always work out as logically as they probably should.
Sometimes things get into video game mode where there are creatures you're allowed to kill and rob without any moral implications. Also, as was mentioned, monsters that really would make life difficult exist in the world but don't seem to generally interfere with how people live until you need them as a plot point.
On the reverse end there are folks who try to make things so super-realistic that they want to eliminate features like magic entirely.