Player overcrowding is one of the main problems that has been plaguing the MMO experience. It occurs when, for whatever reason, a bunch of players decide to all congregate in one location. This may be because this location is a popular city or a couple guilds got together and decided to go raid an enemy base. Whenever this occurs, the players will experience an extremely high latency which turns what would be an epic battle into a frame by frame slideshow with characters jumping 20 feet at a time around the screen.
The problem is that the amount of bandwidth and processing power needed to sustain a good experience for the clients grows quadratically with the number of clients in a given area. Each client that does some action like casting a spell or moving their character has to be rebroadcast to all of the other clients. O(n^2) Thus, upgrading the server hardware may allow you to go from being able to sustain 40 clients in a region to 50, but what happens once more players join the server? Upgrading hardware just can't keep up with the massive amount of users in an MMO which is growing in popularity.
World of Warcraft has hundreds of different "realms" or "shards" which each contain a completely seperate world. By creating different worlds, the number of players per location is reduced linearly by the number of realms. If there were 200 people in Ironforge (the dwarven city), then after creating 4 realms, there would be about 50 people in each instance of Ironforge. This has been an effective way to reduce the latency of popular regions, but it has a couple problems. The following scenario has happened to a huge number of people. You'll have advanced a character very far on realm X only to realize that your friend is playing on server Y. There is no way that you can play with your friend at this point. You have to try to go through the "realm transfer" process which costs money and is sometimes not possible. You may not be allowed to switch to your friend's server because it is too highly populated. And you may not want to leave your guild and all of your friends behind.
While creating copies of the world does help solve the problem, it introduces this restriction on who you're playing with. Also, it does not guarantee good latency...players will and do still cluster together in certain locations in the realm which causes unbearable lag.
Eve Online attempts to have all of its players in a single world. In doing so, their players enjoy a much better experience in terms of being able to play with their friends. In addition, the politics are much more involved in Eve due to the fact that you actually feel like you are part of a dynamic world instead of some virtual copy of a world. Of course this comes at the expense of a heavier server load, which is why Eve has many latency issues even with the most powerful supercomputing server in use in the industry.
It is a very interesting problem, which if solved, would pave the way for a next generation MMO which would actually deserve the title "Massively Multiplayer".
I am currently working on a prototype which demonstrates an algorithm which I came up with to solve this problem. I'll link it here once it is ready. Below is a picture of what it might look like. The blue dots are other players. You are the orange dot. The goal is to see how many players I can have moving around in this "room" before high-latency/failures start occurring.