Just when is a unit really "in" the city?
The moment it enters a world-tile that has an improvement on it (even if it's just taking up 1/4th of the space).
Can enemy units destroy buildings without invading the town square? (or whatever we call that initial city square)
Current plan is: if you attack one part of the city, then you're attackign the ENTIRE city.
Are garrisoned troops considered to be everywhere in the city? (strongly related to the invaders questions)
Yes.
Does the Sov or other units really need to be in the town square to rest/heal?
You heal QUICKEST while in a city, heal SLOWER in your territory, and not at all when outside your territory.
Does anything special happen when cities interlock or otherwise become just a giant urban sprawl?
Not at the moment...there will be a 1 tile buffer between all cities.
Are there roads within the cities?
If so they'll be completly graphical.
Does it take time for civilians to get to buildings within the city? (a possible deterrant to snake and squid cities)
Again, if so, it'll jsut be graphical.
How will city walls work? The current approach seems laking. (another possible deterrant to snakes and squids)
City walls give a universal bonus to the defender. If it's destroyed in battle, the coorisponding improvement is destroyed as well.