The King obviously trusted Ganondorf, and I would guess that Ganondorf visited the town quite frequently. So if the Princess is riding on a horse out of town, followed by a man who apparently has earned the King's trust, I would just think, "Well, none of my business...."
Yes, I think they are stupid, they dont ever notice anything. They always do the same thing, then don't even ever try to help. Then when you become adult they are dumb enough not to leave the city, but to become Zombies instead. Talk about Stupid.