For the MVP, quests are not based on the state of the world. Settlements simply will always have a fixed number of quests available at different difficulty levels, and every time a party takes one another will immediately be generated. The difficulty (and proportional reward) of a quest is a function of the estimated difficulty of the enemies (greater than the sum of their individual levels), the distance to them, and the difficulty of traversing that distance (how dangerous the area is and how difficult the terrain is). For the MVP, the only quests are just bounties to kill parties of enemies, which may be mobile or immobile.
Planning
Since you know what enemies you will face at the destination and can estimate what enemies you'll possibly face on the journey, you should plan a party in advance to account for this. For now this is mainly a question of whether you expect to encounter armored enemies (and therefore need hammers/rondels), hordes of weak enemies (therefore want a cleaving sword/axe/hammer and heavy armor), large enemies (therefore want a polearm), and enemies with projectiles (therefore want armor/full-plate). You will also want to account for difficult terrain or the need for stealth/detection during travel in your party composition, the latter is important if you're traveling through an area with enemies that are too dangerous for your party to fight against.
Mixed-Level
Quests are not balanced around the assumption that all members of a party have a similar power level, in fact its generally the case that you want a mixed-strength party. When you set out to clear out a vampire crypt, you need a very skilled armored duelist or two to fight the vampire. But you'll also be encountering plenty of zombies and skeletons, which can be efficiently dealt with by a small group of decent semi-armored combatants with clubs and axes.
Reward
Rewards are proportional to difficulty, which is better thought of as a measurement of risk. Each character has a value calculated in favor, and each quest has a reward that can be expressed in terms of favor, so to calculate what the reward should be we can choose a power level that is ~90% likely to successfully complete a quest, estimate the favor needed to create a party of that power level times the chance of death plus the resources spent on completing the quest (food, arrows, healing), and multiply the final reward by some constant like ~1.2-1.8 so that its actually profitable. The chance of death versus difficulty of a quest though is not linear for your party level though. A powerful party might be twice as expensive as a weak one but only marginally less likely to die when killing a pack of goblins, so its a waste of time, and likewise the likelihood of a ragtag group of nobodies killing a vampire is basically zero, so there's always a theoretically optimal party strength for every quest.
Interface
So that new players don't naively accept difficult quests since they have no frame of reference for estimating their own/enemies power level, the quest should display recommended power level and their current value before they head out.
Equations
TODO: come up with a first-pass starting point to use to assess party power level.