The point is you can build towards resources and other cities for faster movement etc. It's off so it's not complicated for beginners, but once you start using it, you don't know how you could live without it

Also check out the snaking mod, lets you build towards forest for logging camps, and rivers for docks and stuff. 

Does anyone know if the AI takes advantage of this option when it's enabled?

I don't tend to use manual placement so haven't noticed.

Thanks.

If you build a city building next to a resource that you've harvested, said resource usually gets incorporated inside the city walls (unless said resource belongs to another city).  Incorporating resources inside city walls prevents said resources from being razing targets by maurauding monsters, etc..  Unless the monsters attack and raze the city itself, of course!

Most of my cities look like 'x's and such, because my builds are always placed towards the direction of the nearest resources, so that I may incorporate/protect said resources within the city itself as soon as possible. 

yeah snaking is a bit of an exploit. not really a major thing, though. i used it for a while, then went back to the default auto placement. not so much because it's unfair, but rather because i hated that awful look of tentacle cities