Rome never got up to a million people at its height, and that was more or less the high point of Western Civilization until around the Enlightenment & Industrial Revolution, which is when London managed to reach a population of one million. Like, 18th or 19th century. In the novels by Martin, who seems far more likely to have cracked a history book than the TV writers, Tyrion gives the population as half that, at his first meeting with the Red Viper.

As far as the incest/genetics go, there is the magic component. Daenerys survived the fire where her dragons hatched (and on the show, the other ones as well), and has the magic connection with the dragons. If that trait can be carried through breeding closely, perhaps immunity to the genetic problems can be as well.

Daenerys' direct line of descent starts with Aegon & his sister, then Aenys & a cousin, then Jaehaerys & a sister, Prince Baelon & a sister, who produced Viserys & Daemon. Viserys married a cousin, and had a daughter, Rhaenyra, who married her uncle Daemon, and their son Viserys II married a foreigner. His son & daughter married, and then we got three straight generations of decent marriages to women who were no relation at all (not that there was no incest going on, in those generations, they were simply not Dany's direct ancestors), before her grandfather and father who each married their own sisters. For those keeping score at home, that's four non-incestuous marriages, two cousin marriages, one avuncular marriage, and six sibling marriages. Dany & Jon are precisely the median of Targaryen gross-out relationships, though actually slightly less gross than the precedent of Rhaenyra & Daemon, since Jon was born of unrelated parents, while Rhaenyra's were first cousins, not to mention they did not grow up knowing of their relationship, or having that familial relationship before it turned sexual. Daenerys might be of a prior generation, but she's younger than Jon, so she could never have acted as his aunt, as Daemon was with Rhaenyra. It would seem more squicky if he were to marry /hook-up with Sansa, even though they are only cousins, since they were raised as brother and sister.

So it's freaky, but if there were going to be problems with inbreeding, you'd think they'd have emerged by now. Yeah, there were some who tended to the psychotic, but there are plenty of other explanations for that. Viserys & the Mad King were both born of sibling marriages, but Aerion Brightflame was just as bad, and his father and grandfather both married outside the family, as did the father of Aegon the Unworthy. Baelor the Blessed, who may have been insane, was the son of another non-incestuous marriage, but on the other hand, some of the more decent human beings among the family have also been the children of siblings, including Aegon III, Viserys II and Daeron II, and supposedly, Rhaegar.