yes the game difficulty affects the aggressiveness of the other NPCs. it affects also their economy. So if you're playing on hard, the NPCs should make more money and thus be able to buy better titles and with better titles they get better offices.
Not only that, but it changes how rampant the plague will be (to my understanding of recent updates).
I think it also has an effect on the market, not too certain on that.
I've also seen somewhere in the code that the AI Dynasties (the real ones) will start off with more children, more established with a family tree started. I could be wrong on this, but I only play on hard and one year a turn. I notice a population boom in turn #12-14 with AI dynasties, suggesting those kids were born before the game started. I could be wrong here, but it is what I have noticed in my games.