Agree Zygwen, your city locations are going to greatly depend on the resources that are available.  Food and Shards being the top priority.  Crystals are also good.  I think gold and materials are the easiest to come by.  I go for food resources first because, if there is a location that has two or three resources relatively close, but no food, i still want to build a city there.  The extra food from the other locations is just going to have to pick up the slack.

Assuming no resource node influence (it's ideal to link cities to certain nodes to make use of the level up bonus), city placement depends on how much you plan to "grow" your cities, this usually have to do with how much food you have available and what side (Kingdom/Empire) you are playing. Let me give a quick example (the numbers are off my head and might not be 100%):

A kingdom outpost can grow to a level 2 village with 1 hut (requiring 1 food), and to a level 3 town with 2 huts. To get to city (level 4), you need 3 food, but you need to have researched housing. If not, you would need 6 food. A level 5 metropolis needs 10 food and housing researched. At which point you can demolish the houses and use the food to grow another city (this might change later - it's really cheap). Depending on your available food supply, it's important to plan just how high of a level you want.

The level matters mainly because they generate different amount of influence (zone of control). A level 1 outpost with no huts has a ZOC of 2 (one tile away from the center), a level 2 village with 1 hut has a ZOC of 4 (3 from the center), and a level 3 town with 2 huts has a ZOC of 6, etc. So if you are planning to have 2 level 3 towns, the placement can be up to 10 tiles away from one another, and their ZoC would overlap and everything in between would be your territory, making it safe for caravans and eliminating monster spawn in the middle of your empire. On the other hand, if you're lacking food and city spamming villages (the caravan generated would at least make up for the 1 food needed to grow to level 2), then you'd want them to be 6 tiles away from each other. This is probably the closest that I would put them together though, and only in cases where you know you won't be growing the cities in question any higher, because otherwise you will find yourself without any room to build.

It's also important to note the pace of growth in your cities (prestige), you might plan to have level 5 metropolis everywhere, but it's takes very long to grow unless you choose royalty trait, and use buildings like capitol and theater. Even then, you'd often only have 1 or 2 metropolis in a game.

In my experience playing kingdom with royalty trait, 8-9 tiles away is a good number. It doesn't take very long to fill the spaces in with your influence and gives you plenty of room to build improvements without much concern. I've only played Empire a couple of times, so maybe someone else can give a better number for them.

Thanks for the input!  I've always been a big fan of big cities over a bunch of little dinky ones.  I'll try in my next game to go for 8-9 tiles of space eating up as many resources as possible.  I've tried to build a town in more or less a "mountain pass" type spot to prevent other factions from coming into my land, but it doesn't seem to be working so hot as it's too close to another town and I can't bloody well build anything there.

I might even want to start my game over tonight lol

If your city levels up to 3 you can legally destroy all houses because the city hub itself is then upgraded in capacity to hold all the current population and then some.
This is not an explot. It would be if you didnt have the space to house all your people after that...

That means you get irrigation from lvl 2 and... whatever you fancy of the lvl 3 buildings. With a negative food cost.

It takes some jugling to keep them switched over but such is the price of micromnagement.

All this, plus fill all the gaps with more lvl 1 cities even if there are no resources.  You still get +1 gold/tech/arcane by building market/library/study.  1000 of these cities = 1000 gold/tech/arcane plus the ability to produce 1000 troops at once, if you want.

BADLY broken.

One thing that is important to note is that the limit for resources and cities are based on the closest tile with improvements. Thus the radius that  city can affect is -not- circular and can be marginally bigger than would otherwise see.

A level 1 city with the 4 basic buildings (mat, gil, tech, arcane), will (assuming ZOC) connect to the following resource.

[C] [I] [I] [ ] [ ] [ ] [R]

Thus the bigger the city will ultimately be, the further away you can afford to put the city. I've been able to build a level 3 city that has grabbed all the resources that were ~6 tiles away in multiple directions. Using the same principle, I've built cities that have reached resources 10 tiles away in a single direction while still getting the nearby resources.

The main benefit is putting a lot of like resources into one city or grabbing single resources that don't modify well (a single farm does not benefit from irrigation). It's ultimately far cheaper as you also tend to not be spending as much money on buildings (among other things). While stopping monster spawns are nice, it's usually not a huge problem in the early game especially if you hire one or two champions. Monster problems only happen if you're rushing too fast - I've yet to have an issue with monsters even with 12+ cities (and still expanding) that are far more than 10 tiles apart. The monsters you worry about at later in the game... at which point your cities have grown enough to push them out. Especially if you have minor factions near by, their vision radius will also push monsters out.

Not to mention that having more champions brings you their benefits. The most important is that they artificially inflate your might rating; the game gives them more weight for military purposes. Thus by snagging champions like they're going out of business, I've been able to reach into mid-games with virtually no standard military while still having no monsters roaming around due to multiple stacks of champions (I generally end up with 3 to 6 stacks of multiple champions). All of whom are generally mid-level; due to stacking, I also eliminate the need for high level equipment. Later in the mid-game when units start to overpower champions, all that money I didn't spend on equipment for champions and hordes of units (and then some since I'm not supporting them financially either), I can use to immediately create unit stacks of high quality. And due to cleaning up wimpy monsters, I have enough of a surplus of gildar that I rarely want. When I do want, my surplus of other resources lets me borrow from others readily.

Also, as far as population, at the moment, you can 'store' population (if you have resources available). Since anytime you build something, it takes the resources right then, if you build, say, a pioneer, then queue up a bunch of cheap units, those population points will effectively be stored. Each turn, add more to the queue. Once your housing is done, you can cancel the queue to shoot them back into the city.

I really should grab some screenshots for the improvement thread.