The extra 85,000 "phantom sims" play no role in the simulation, they're completely fake. They don't have homes, they don't go to work, they don't pay taxes. They presumably exist to try and hide how small the cities in the game really are.
Maxis made a claim that that many Sims were included in the game and they are not? Interesting.
There is an eerie connection to real-life politics here... I can sort of hear The Ghost of Mitt Romney as I read this...
Actually I always wondered how that would work and it does seem unlikely that a computer would reasonably create fictional lives of that many Sims in flux. But it's a cool idea.