ok, so I'm at the dwarven village where all us newbie dwarves hang out and I keep seeing others wearing cloth armor running up to the guards, picking a fight, and then dieing just to respaw 10 feet away and start the process all over again. . .
am I missing something or is there a reason for this as it seems kinda . . . well . . . odd.
Yes, there is a reason. Sometimes it's advantageous to keep your character at a specific level to maximize the potential of getting specific drops. When the character gets too high for a particular mob and it no longer drops well, you can kill yourself over and over again until you lose enough xp to delevel the character.
Usually, those you see doing that over and over and over are what are most often refered to as farmers. They usually have odd names that make no sense and will be there doing that in the same place still when you are in your 50's. I won't go into the reason why they do this for so long since it's a touchy subject here on the boards and will cause the GM's to edit or close the thread.