I am wondering if I am missing a key concept ...

Heroes have skills which improve as one levels.  Monsters have a single skill die used for checks.  

According to the NPC chart, NPCs also have a single skill die.  My assumption was that it works similar to Monsters.  But then I came across the NPC Grun who has disadvantage on melee, athletics, and agility due to a bum leg.  Which made me start thinking about the single skill die.  With little experience Grun can become a level 4 NPC which means he has a Skill Die of d8 in every skill?  If we look at our Hero Daxir at level 4 (which requires 120 vs 20 XP) while he has a few skills above a d8 mostly he is unskilled or less skilled.  The NPC skill die and/or XP seems unbalanced.

If our friend Grun does well and becomes a Level 1 Hero, is he not going to lose skill in almost everything?

As I initially stated, I feel like I am missing a critical nuance and my conclusion is faulty.

I would appreciate any clarification.

Hey Greymark, you've highlighted an area where I would like to do some tidying up of the rules to balance them and also make them more consistent.

I would ideally like to have one NPC/PC character creation system but a PC just gets some extra benefits on-top (i.e. additional health boost and the use of class abilities which is limited to heroes or important NPC's/villains only).

Presently, I suggest referee's use their judgement here. If the skill check is related to primary skills then use them but if the skill check is something completely unrelated then don't apply it. The d20 + skill die system is intentionally swingy so it can generate results either way which acts as a prompt for the outcome of the action.

If you have any thoughts on how you would balance it, then happy to hear them. Thanks for the posting the question.

Well shucks.  I would have preferred ... "You got it all wrong, let me explain"

I am going to have to revise in some manner on my end.  Let me give it some thought, and I will report back.