Sparsely means hardly any, or thinly spread. Densely is the opposite.
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She spread the butter very sparsely onto the toast. This sentence works because sparsely means to do something very thin or scattered about.
Sparsely means only occassionally or thinly. So, sparsely settled means people occupy the space, but spread out. Example: The sparsely settled colony of 5000 square acres only had 40 residents, with most of them living in town and some living on the outskirts.
A village is a small settlement, smaller than a town. Different parts of the world will have different ideas of how small a village is; generally a village in a densely populated area is bigger than one in a sparsely populated one.
The city is densely populated.
The word is spelled sparse. It means very few, not very many, The Arctic region of Canada is sparsely populated because of the severe climate.