This thread has given me a lot of ideas and also reminded me about how other strategy games I've played have handled similar problems/situations.
First, though, I just want to say something about scale. At the moment it seems like the scales for 'cities' is to be honest more like a scale for small towns than anything. A city is a collection of a small handful of buildings and a small handful of people with maybe a small handful of guards...and yet we can mass produce armor and weapons and perform magical research fairly adequately.
I think the scope of the game, graphically, at least, could use some work. I would like to see roads between blocks of buildings, walls, and I'd like to see sprawling cities. The city level idea is fine but I think it might make sense to have the size of the city more based on population than a pre-set cap, so it /is/ possible to just keep building and just keep growing until you hit natural barriers. (Like some great cities in the ancient world.) This can be handled quite easily just by changing the scale of the graphics when it comes to cities and adding some more visual accouterments and embellishments.
Rather than hard, pre-set levels I would like to see a city as it gains population grow in size and certain buildings pop up automatically...and when a city loses population to war or drafting or famine old buildings fall into disrepair or become uninhabited or even fire hazards. (Giving you a decision to demolish them or leave them and hope they soon become inhabited.)
I'm reminded of the Strategy game Tropico in multiple ways from some of these suggestions. (This is a good thing.) Firstly, Tropico had land color coded for things like fertility and mineral richness; but areas that were especially so would be rare and coveted. Most importantly though in Tropico as you gained people they naturally built things on their own.
I'd like to see a system where city planning and randomness were two uneasy partners; get too much population too fast they start building their own slums, shanties, seedy inns, and bars and twisty roads. If you can plan you can pre-build city districts and housing and straight roads...but if you mess up these buildings become abandoned and cause prestige penalties for the city.
Basically, things are built automatically as they're needed, but the things you build via a plan should be more organized and more effective/prosperous than the things people build on their own. You have to balance how much time/effort you want to spend trying to make your city perfect...because if people build the city it will be less efficient.
Just like in Tropico, though; if you knock down their shanties and dirt roads, they'll be angry/work will come to a standstill until you rebuild.
It could be the same with roads between cities: The natural roads that'd pop up would be twisty dirt roads; treacherous and random, but you could either pave those roads, or attempt to jump the gun and build roads ahead of time to be more prosperous...but if nobody uses them they fall into disrepair.
Basically, a section of the city you plan would be visually neater and more prosperous but more costly and take time to build. It will give you a prestige and money bonus. Sections of the city auto-built would be random, disorderly, and cost you money and prestige with thievery and poor living conditions. Some cities might have 'rich' districts as well as slums, and it'd be a matter of balance or a struggle between what the people built themselves and what you built and planned.
Furthermore; with a governor the city's auto-builds could be slightly more orderly, but not as orderly as the things you took the time and money to build yourself.
Example: You build a housing district with roads, houses, and a school You build walls around the district. It costs 350 Gold, offers housing for 30, and provides 5 prestige.
You leave your city alone for a few turns, but have extra food and plenty of trade. Your housing district fills up, and new people to the city start building their own dirt roads and shanty houses outside. These shanties and roads provide population but say, cost 1 gold and 1 prestige a turn.
You could decide to pave the roads and rebuild the houses for a couple hundred gold to say make it so the district costs nothing and offers 1 prestige a turn. Or you could be willing to shell out even more money, and grind your city to a standstill to bulldoze the shanty town and build another housing district.
In another case, the district you build could have no population come into it, and then it falls into disrepair (Graphics darken) and it starts costing you prestige and gold to maintain.
My last point is about combining tiles; I like this idea.
I've played plenty of strategy games, even back in the day (like Civilization 2000 and Warcraft II) Where random tiles would change so that lots of the same tiles looked different than individual tiles. In this way, a row of 4 gardens would become one large garden with a few houses and people working them with a road nearby. Or several merchant buildings would combine into a little open market with a road running through it.
Maybe it'd be hard to do...but stuff like that adds flavor and character that is needed to make the city building not a chore, but fun and rewarding.