Xiao Mu and Xiao Hui led the undead into the hobgoblin royal city (old), finding that there weren't many hobgoblin guards inside—only a few hundred, specifically tasked with managing the city's defenses. Most of these hobgoblins were Standard level, likely because all the Commanding level ones were piloting the iron beasts.
With just these hobgoblins, they couldn't gain much experience, and the rest were just civilians. These hobgoblin civilians were dressed in rags and looked emaciated, clearly having a hard life. They were probably abandoned when the hobgoblin kingdom relocated.
Seeing Xiao Mu and the others, the civilian hobgoblins knelt and begged for mercy, not daring to resist. Although they desperately needed experience points, Xiao Mu and the others didn't slaughter these civilians.