I did some research on this recently. But the short answer is that bandit hideouts spawn bandits and looters. The game tries to keep the number of hideouts at or below 50% of their maximum density. .
Hideouts are invisible originally, only the player can detect them by coming close enough to them for them to be in their scouting range. The difficulty of scouting a hideout is limited by the number of troops inside it, so you might not see it even within your normal scouting radius if it's not too populated. Hideouts are actually permanent locations, but only "infested" hideouts count. Weekly, if the number of infested hideouts is less than 50% of the maximum, it will try to spawn a random amount of hideouts up to 50% of the maximum density.
The game will try and keep a relative static number of bandits and looters around nearby hideouts up to a certain maximum. What the game cares about is actual mobile parties, it doesn't care about how many are in it. Hourly at night time, it will check to see if there's too many bandits around, and if not, it will have a chance to spawn another group of bandits or looters of the appropriate bandit faction.
The number of bandits and looters scales based on the player's level and the number of days elapsed and a bit of a random factor.
The number of looters and bandits isn't something you will ever be able to reduce. The best you can do is maybe kill the big stacks and ignore the little ones, and then by random luck the next one might spawn small, and if you keep ignoring them, it can eventually fill up to the maximum number of allowed parties and stop spawning. But as soon as it decides to spawn another it will choose to do it based on your a dice roll multiplied by a function of your level and the number of days elapsed from the start of the campaign, and that might be a big group.
Clearing out bandit camps will change how many parties spawn, but only for about a week until the game tries to fill back up the depleted bandits. But it won't have an impact on the strength of the parties.