Here is my thought process:
I imagine that I'm casually out in a forest, foraging for various fauna I'll need for Alchemy recipes... In the distance, I hear or catch sight of an approaching group of players. They could be friendly. Or, they could be of questionable-repute. The point is; they haven't yet noticed me, they could be a threat and if it came to a fight- I'm already at a disadvantaged by being outnumbered.
From a visual standpoint, I 'could' place my character model behind a tree. Or try to conceal myself in a large bush. If my clothing is dark and the shadows are deep, my character model 'should' be hidden well enough to go undetected and unbothered by the group of passersby.
EXCEPT for the text in my Character's name. That might be perfectly visible (and most likely the primary means of noticing other players at a distance). As much as I would like to hide, it wouldn't really be possible due to the nameplate being so noticeable (alphabet letters peaking out from the side of a tree, or clipping through the branches of a bush).
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
I've seen in other games there are special emotes that allow you to 'crouch' or 'hide' and while using it, and it disables the nameplate of the player/character-models. The trade off is; you can't move.
This WOULDN'T be like a Rogue's ability to Stealth. Your character is STILL visible. But the nameplate vanishes until you move again or interrupt the emote. Clever and observant players can still, indeed, spot you if they are looking. Or they just happen to notice the light reflecting off the polish of your armor, or if the coloring of your clothing is particularly bright. Or for any other reason.
But it affords the hider, at least, a chance to go unnoticed.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
This same system can also be used offensively as well. If a group of players wish to "Ambush" a caravan. They can lay in wait by the road. Using their hide-emote to remove their nameplates until the caravan draws closer. Then spring up all at once to attack!
If an observant group of guards happens to spot something 'odd' off on the side of the road, they might be able to predict a possible ambush and adjust accordingly.

Just imagine the excitement and exhilaration of being chased down by a small group of players. You dive into the darkest part of the forest, or a nearby tunnel to the Under-realm. You crouch down and hold your breath...waiting and watching as member after member silently stalk pass your hiding-spot. And once the final person is far down the trail, you quietly make your get away.