I'd imagine that razing a city has multiple effects, which should be kept distinct. A lot of the talk is saying that razing a city that should not be taken lightly, which I agree. But it has a lot of side effects, some of which can be positive, depending on the situation:
1. The empire that had the city is weakened.
2. The enemies of that empire are happy that it is weaker.
3. The allies of that empire are mad that you hurt their ally.
4. You hurt your future of taking that city and devleoping it into one of your own. If its not a city you could reasonably hold, then this is not of consequence.
5. That empire is going to hate you. This isn't just a land dispute anymore - this is outright war.
6. Peace-keeping nations are going to dislike you, and war-mongering nations aren't going to care.
7. Nations will fear you! You're no longer the friendly Roman empire, marching into a city, claiming it as your own and putting up a flag and changing who they write their taxes to. You're Ivan the Terrible, you're Genghis Khan! You don't keep prisoners, even if they do.
8. Royal ties to those killed in any instance will hate you. Although I suspect that you should be able to attempt to capture royalty, even if you raize the city.
9. Royalty born in that city will hate you.
10. The actual people of their ethnic background are going to hate and fear you, unless they are the war-mongering type. This makes other cities of the same empire's easier to govern at first - "Hey, they burned down Chicago, I'm gonna listen to what he says or they'll burn down Atlanta too" - but harder long term. "I'm not paying my taxes, it'll just go to those Chicago-killing Canadians!" Obviously this effect rolls over into cities you already have control of (say, that one elven nation you have on the other side of the map), because you killed their kin.