Hello, I'm working on an MMO-ish engine and am currently looking to add jumping, falling, and walking up/down sloped surfaces.

My question is: how do MMOs typically handle gravity? With so many entities to simulate, it seems non-ideal to constantly be applying a downwards force and resolving collisions with the ground. Is my intuition incorrect and they do it anyway? Or do they do some sort of “cast a ray down, handle ground/slopes/empty air differently” approach?

In MMOs - assuming you simulate physics - the gravity can be simulated similar to standard games. This is in general done by applying force to all objects where it makes sense.

You don't need to apply gravitational force to objects that are resting on the ground (that also may incl. characters that are moving “sliding” on the ground).

Note that there are reasons why many MMOs don't have too complex physics systems or some even not simulate physics at all (or do that at client which doesn't have any gameplay impact, just visual one). That is to decrease the amount of data you have to transfer over the network.