NPCs levelling really slowly is a known problem, yes. As time goes by PCs outpace NPCs.

They do other things besides declaring wars.
- Start murder schemes up to a point where Paradox had to nerv it recently because of whining noops
- Use debuff disciplines on your capital, like swarms of animals or clouds of darkness
- Skry and pry until they get potential blackmail hooks on you
- Start useless rivalries and bs feuds among themselves. I had runs where I lost more knights to infighting than to hostiles

As for challenge runs: You can start the game cursed as a count nobody. You could play independent hunters. Just pick the Jewish or Muslim ones if you really want some pain.

During one of my inquisition playthroughs some vindictive fae used holly strike to punch my heir in the ♥♥♥♥. Repeatedly. Just to make him infertile.
Nossies also liked to infect my family members with leprosy after I hunted their family members.

NPC rivals are fairly good at super petty stuff like abducting your dog, slander etc.