As a boy I enjoyed a lot of Robert E. Howard's Conan stories, both Howard's originals and the Marvel comic books. One thing that consistently bothered me about his Hyborian age setting, though, was that it used recent historical real-world geographical and ethnic proper names for his prehistoric "age undreamed of."
Conan was a Cimmerian. The Cimmerians were real, historical people best known today for attacking ancient Middle Eastern countries like Urartu in the eighth century BC. Conan's adventures take him to places like Khitai, "Afgulistan," Iranistan, Hyrcania, Kambuja, and many others that are basically real-world earth names changed slightly or not at all. The Vilayet Sea especially bugs me, as that is a Persian word (derived from Arabic) simply meaning "province." Then you have Shem, the land of the fantasy Semites. The list goes on.
The intended effect of using real-world, often modern, names for a pseudo-prehistoric fantasy world is to conjure a whole setting through mental associations with a single name. Howard's ideas for countries seem as if they arose from his flipping through the pages of an atlas or a one-volume encylopedia. Evocative names drawn from the real world allowed Howard to rely on the mental associations of his readers to fill in the gaps left by what is unsaid with generalized folk beliefs about the people and lands associated with those names. Mostly, those associations are stereotypes.
The unintended side-effect for me has always been that these undisguised references pop the fantasy bubble. I simply can't suspend disbelief in a prehistoric "Hyrcania" when I know quite well that this is a specific place by the Caspian sea, a land named for wolves in ancient times--but not prehistoric times. There may be readers who think it's cool that he looked up some old names, but to me their deployment looks juvenile and worsens the fiction.
Let's call the deployment of references to real, historical things in purely fantastical settings Real-World Transplants. You can type RWTs for short.
RWTs in fiction do work for the author and the audience. In role-playing games, they allow gamers to agree on unspoken assumptions about fictional places by relying on stereotypes and "common knowledge." This, in my view, is the main reason for the reliance on European bases for fantasy settings. Players in the Anglophone world share more knowledge (correct or not) about Europe and shared assumptions about fantasies set in imaginary versions Europe than about other countries.
Yet there is a limit to what RWTs can do. They create flavor and atmosphere but they also set a limit to believability. Real-world references in a fantasy setting undermine the fantastic and imaginary character of the setting. If the intent is to create an alternate version of our world, that may be expected. If it's just fantasy, or if the fantasy does not accord with known history, then you're mixing flavors by introducing RWTs. Some people don't mind those flavors. Others dislike the mixture. I tend toward the latter.
RWTs are frequently used to invoke what I call generic exotic. I wrote a bit before about what makes fantasy generic. It's a topic that one could write whole books about. There is, though, a generic exotic, constituted of the cultural names, terms, and references shared by players that give fantasy the flavor of "foreign." They are Real-World Transplants that instantly convey to gamers some characteristics of this particular fantasy object.
This is a tough problem made tougher by contemporary cultural politics. I also wrote before about what I called the "eurofantasy." The idea is that the unspoken default of fantasy has been an imaginary Europe based on selective features. These features represent only a tiny sliver of European history and culture, but they are the shared references mostly for Anglophone players. I discussed ways of getting around the eurofantasy, and I concluded that basically it's probably too hard. (I also found that southern and eastern Europeans hated the term when I introduced it into an online discussion forum. They said that what I meant by eurofantasy did not include their countries' histories--but that was my point. It's a bundle of stereotypes.)
One shortcut to generate the generic exotic is to use RWTs. If you call your fantasy desert land to the south and east something like "Al-Hazeeq," every player will immediately conjure up an Arabian fantasy. If you call it "Chian-Ma," the players imagine a fantastic East Asia. If you have an island country called "Tokumaga" in which samurai and ninja wage war, everybody knows that this is a fantasy Japan. Set aside the problem that most of the fantasy references shared by players will be stereotypes, sometimes of an insensitive variety. You could even throw caution to the wind and use real-world names as R.E. Howard did. Say you create a high-mountain country called Tibet, or change it slightly to Thibett, full of serene monks and snow-monsters called yeti. For some gamers, this is no problem. Point of reference is established. But at this point, your RWT is breaking the fantasy bubble for me. It's not an echo of the real world. It's just a piece of the real world air-dropped into fantasy and it is incongruous with its otherwise fantastic surroundings.
If you had US-American players completely ignorant of geography and history, I suppose you could just lift a historical setting like medieval Hungary, use the real historical names and places, and run it as if it were a fantasy setting. For all your ignorant players will know, it is just fantasy. They never heard of it. So RWTs rely on player knowledge, but the closer they replicate real-world names and terms, the closer you come to undermining the fantasy. How far do you have to go to satisfy a gamer like me, whose day job is studying and teaching about ancient and medieval cultures and history? Sometimes knowing more about a thing ruins it for you. It's a little like the way Marvel comics experts get upset at very particular features in Marvel comics movies that are incongruous with the fantasy they know. Did anybody really like the Hobbit movies if they already loved the book? But RWTs are not quite the same as fan dissatisfaction. I'm not a "fan" of history, insisting that fantasies "get it right." Unlike history, RWTs are not about a particular version of fantasy. It's about any fantasy being undermined by proximity to details already strongly associated with a particular and determined reality. What is particular for you is generic for others.
When I read the fascinating setting book Yoon-Suin, I was impressed by its creativity and eloquence and utility for gamers who want something exotic but not exotic generic. By drawing its RWTs from a quadrant of southern Asia unfamiliar to most Anglophones for its inspiration, it defeats the generic while evoking a land of opium and tea and D&D monsters never met before by your Fighters and Magic-Users. If you want an unusual exotic setting that defies generic tropes and you like to generate a world via results from random tables, this setting is perfect for you, and it's not expensive. At the same time, I stop in my tracks reading Yoon-Suin when I encounter the lands of Sughd (Sogdiana) and Druk-Yul (Bhutan) known by their real-world names. The same goes, to a lesser extent, for monsters like Gyalpo, Mi-Go (yeti, not Lovecraft's space bugs) and other creatures lifted from historical earth. These are, in a way, familiar to me, and they have never been generic. The effect of non-generic RWTs like Sughd, for me, is to break the fantasy in the same way as Howard's Khitai and Hyrcania. It's like making a fantasy world of goblins and dragons and placing an island kingdom in it with a capital called London, in rivalry with another kingdom across a strait called France. The RWTs are too close to the real and violate the boundary of fantasy. In minutes, players would be adopting British and French accents.
I immediately see an argument that some RWTs are necessary to do the work they are supposed to do. They create shared references for a shared fantasy. I'm not against them. The sole point of my discussion is that RWTs may turn from a bridge for fantasy into a gulf across which the suspension disbelief cannot cross.
There is a limit to which one can complain about explicit RWTs. As I repeatedly observe, our fantasies never escape the close limits of our realities. In fantasy role-playing games, we have medusas and gorgons and chimeras, all specific mythological entities turned into generic monsters. But these have been made generic through their repetition recycling in popular culture since before fantasy games began. Because Gyalpo are not common points of reference for everybody's fantasy worlds, perhaps even for any other fantasy world in existence, they are fresh and exotic for some, but fantasy-busting RWTs for a few.
Real-World Transplants are a useful tool to compress lengthy, and often boring, exposition of a fantasy world into a few names and terms that stand in for large quantities of stock stereotype material. They are explanatory short-cuts that give settings a more concrete feeling by loading the fantasy with shared expectations between GM and players. They only work via shared knowledge. But RWTs can also leave participants behind when personal experience interferes with their shared fantasy. Why not change the names, at least? But does changing names render them inexplicable and useless as shared points of reference? If all fantasy settings were required to be completely alien, we'd be left with settings like Tékumel, a lot fewer participants, and some completely unbelievable fantasy worlds in which it is hard to identify with characters. But even "alien" worlds like Talislanta are full of thinly-disguised RWTs. The degree of density and proximity of RWTs to their referents will remain a matter prior familiarity and individual taste.