Once I have destroyed an enemy (I am Tarth - custom made Sovereign of course).  The cities that I have conquered physically look like my enemy cities.  However, I can still build and create my armies with them.  I can also increase the level on those settlements.  The problem arises when I reach the Town level.  The computer says that I need 500 population to reach the next level (for my own town it is only 400 pop.).  The problem is that I can build as many Huts as I want, the city will only say that I can reach 400 pop max even if I will reach the next level at 500 population.  If I am not clear enough, please feel free to ask questions.