What actually constitutes a town depends on where you are - medieval English law expected a town to have a market charter and the accompanying local government, but not normally to be permitted fortifications. A town was the lowest level of settlement in which a serf could become unbound by refuge.
In the modern era towns are generally defined by population - although where the line is drawn (literally in some cases) can vary: many American "small towns" would be considered villages in the UK and equally many of the UK's 'large towns' are cities by the modern reckoning. Establishment of specific forms of local government also plays a significant role in determining whether a town exists or not - much as it did in the days of the market charter1.
Due to their urban nature towns are generally local hubs for trade, commerce and industry. Traditional economic models will tend to show each town serving a ring of villages for which it provides market facilities and support services. As a result of their focus on commerce and industry the towns rely on the villages for much of their food production. These models are somewhat undermined by modern economic structures but are still useful in some ways - the presence of towns is still a good indicator of development to a degree where there is enough food surplus to begin supporting specialised trades.
In the pre-modern period, most towns will usually be accessible to a river or the coast - rivers in particular provide not only water, but also motive power for mills and a transport route for trade (given that decent roads have historically been rare and expensive). Depending on the town's layout the water may also be incorporated into its defence plan and the town may in turn control a crossing point such as a bridge or ferry. Where natural watercourses are inadequate, a canal is often constructed.
Game and Story Use
- Realistically your PCs are going to have to shop somewhere - and most of what they want won't be available in a village.
- Bear in mind that it may not be available in a town either - these tend to be bottom tier shopping destinations, but at least there will be shops.
- These should have a distinct change of feel from villages … not to mention a change of smell in a lot of cases.