This is one of the most important features of the game, so I guess I should tell you something more about it. Let's start with the cities. Each city can be described with one of the few available development levels. You'll be dealing mostly with villages and smaller towns in the early part of each game. Your objective will be to help them to grow. As a result, most of these towns should become metropolitan areas. The only way to help a city is to satisfy needs of the citizens. These needs will also grow and that's a good thing, mostly because you won't have to worry about supplying the town with specific goods. Growing villages is quite difficult. These areas will be demanding only a few types of resources. As a result, you'll probably have some problems locating an industrial building and creating a proper connection. Sadly, there is no other way. You could wait for computer players to help such a city, but it would take a lot of time. Also, remember that villages won't allow you to turn profits by transporting passengers and mail. This is the main reason to help them out in the first place. Thankfully, you should be able to find the resources in the vicinity of a town/village. Depending on the location of the city, you will be delivering coal, grain meat or something else. You will also have to make sure that these resources are being delivered without any unwanted delays. Otherwise you would have slown down the growth rate.
Sooner or later, you should be able to upgrade a village to a higher level (it occurs automatically). This means that new types of needs will appear in the demand window. You'll also be able to proceed with the standard transportation process (passengers and mail). Sadly, there are also a few other things for you to worry about. As you've probably noticed, some of the demanded goods (paper, steel, food...) aren't resources. This means that you will have to manufacture them in the first place. The easiest way to do this would be to win or buy certain factories. These objects may be located in the same city, however this isn't necessary. If you decide to choose some other town, you would have to deliver manufactured goods to the designated city. Once your town has reached a metropolitan area status, you will have to start thinking about the most luxurious goods - arms or automobiles. This also means that you will have to create complicated production chains. For example, if you plan on manufacturing cars, you will have to start gathering steel. This can only be done by producing it in the steel mill. Thankfully, creating these types of chains will allow you to earn A LOT of money. You won't have any problems selling these goods and you'll be able to deliver them to larger distances without having to worry about the maintenance costs.
You should try and upgrade your cities to the maximum level. This will allow you to proceed with the production of the most luxurious types of goods.