Magic, both arcane and divine, is something that is infused into the setting. Common villagers are not unaccustomed to seeing displays of either, though it is usually employed as a means of construction or healing and even then is typically used on a small scale. Spells such as Prestidigitation are genuinely entertaining and other spell effects are impressive, but in all but the most remote and extreme of areas, are not things that Joe Farmer has zero experience with. A spellcasting character can safely assume that most NPCs are at least passingly familiar with the “usual” spells of level 2 or lower. Even if they’ve not witnessed them, they probably have heard about them from someone and have a general (if not entirely correct) idea about what a given spell might do. Beyond this, however, most NPCs one encounters in town won’t know or would consider such magic to be incredible. A Fireball or Flame Strike spell would be something out of a legend to them and would generate an appropriate amount of awe.