Why is the active space for the dinitrogen cation defined this large in my example?
The active space is a truncation of the full CI space. Hence, including more virtual orbitals will lower the energy and eventually approach the FCI limit. The larger the active space, the more accurate the results.

The smaller active space will give you a good qualitative description.
But if your results turn out to be quantitatively wrong, increasing the active space is one way to improve them.

To get an idea about the higher orbitals, take a close look to the Molpro output. You might want to check the Print options, to get all desired energies and orbital coefficients. Furthermore, you can use for example put to create molden files and create 3D isosurface plots of all MOs.

Possible active spaces

The smallest meaningful would be to include the singly occupied $3\sigma_g$ orbital, together with its anti-bonding pendant $3\sigma_u$. Furthermore all the $1\pi$ orbitals should be included. This makes a CAS(5,6): 

occ,   3,1,1,0,3,1,1,0
closed,2,0,0,0,2,0,0,0


Your occ,3,1,1,0,2,0,0,0 card actually excludes the anti-bonding $3\sigma_u$ and $1\pi_g$ orbitals, which corresponds to a ROHF calculation. 

The next larger space would be the full valence active space, covering the whole $2s2p$ AO shell:

occ,   3,1,1,0,3,1,1,0
closed,1,0,0,0,1,0,0,0


Addtionally one could also include the $1s$ core orbitals with closed,0

The next thing to include would be the next higher lying virtual orbitals coming from the $3s3p$ AO shell: occ,5,2,2,0,5,2,2,0. After that one could go on with the $3d$ and $4s4p$ shells.

The occ,3,2,2,0,3,2,2,0 card would include the bonding $2\pi_u (3p_{x/y})$ and anti-bonding $2\pi_g (3p_{x/y})$ orbitals, but not the $4\sigma_{g/u} (3s)$ and $5\sigma_{g/u} (3p_z)$ which are similar in energy.