Art by SnowSkadi
I haven't had the time or energy to create a whole world for my games from the ground up, so I've run in the Forgotten Realms. I haven needed to create a lot of information for the cities and neighborhoods I've used, however. The official books don't usually get into the finer details of minor locales, and they tend to leave a lot up to the Dungeon Master's taste. That can be a great thing, but it can also leave a DM wondering where to start. I've found that knowing two things about a place can help set the tone for the rest, and that you can't get away from these aspects: how a place is run, and its underlying alignment.
While it might seem like a neighborhood can't have a government all its own, all you need to do is imagine how gangs, guilds, and/or families can affect a slice of the city. The farms outside of a metropolis could be set up with feudal lords who pay a tithe to the wizards who rule over everything. The two rival families fighting over the docks might treat the district like their own personal kingdom, with their children as criminal princes and princesses. A few square blocks could be important enough to warrant a separate ruling structure altogether, such as the string of temples that make up a city's founding religions. After all, they belong to the gods first and foremost. By the same token, you can zoom out and focus on the way a whole town is governed rather than being worried about smaller portions of the population.
It might also be difficult to assign one overarching alignment for an entire town or sector, but what you're really setting up is the way the people there tend to react as a whole. It could be that a NG place has more NG characters than average, it might also mean that when push comes to shove, the town will adhere to laws or break them to ensure that the greater good is done. Keep in mind that a place's alignment can be reflected in its overall appearance and vibe, or might contrast sharply with its ambience and reputation. There are plenty of impressive and beautiful evil locations, such as the cities built through slave labor for the glory of sorcerer kings. A visitor might be too busy marveling at how clean, orderly, and rich everything is to notice the unpleasantness that's swept under the streets.
Hopefully you're already starting to get ideas about how one decision will lead to another.
Every sizeable group of people develops a political system of some sort, whether they try to avoid it or not. Utterly chaotic gatherings don't tend to last long without some unifying factor, and even then, without organization even a determined group can fall apart. Social systems provide order for labor, wealth and laws. All cities have their own arrangements, some of which can be seen on Earth today.
A colonial figurehead represents a distant greater authority (such as a conquering kingdom, empire, or even just a mighty noble). Since colonies can be set up quite far from regular oversight and correction, the colony's ruler might have considerable sway over the locals. But they generally have to make sure that the settlement's tithes are paid, and they could be required to implement policies they don't like at any time. Refusals or delays could result in being replaced or worse.
A council is made up of a group that inevitably represents what the population values and respects. They might be the eldest people around, a pack of merchants, or the heads of the local guilds, but they tend to symbolize larger concerns. A crooked council will swiftly begin making secret deals in their own best interest, while a fully polarized council could take forever to sway enough opinions one way or another.
Feudalism gives local lords power over their own territory and the serfs, or common people, who reside on their land. Serfs are expected to work for their lord and fight in his battles, if need be. They might be tied to the land and need permission to travel or leave, as well. In return, lords are supposed to provide protection and a prosperous kingdom for their underlings. Feudal lords will vary in strength, and the one with the greatest resources rules the rest. Lesser lords swear fealty to greater ones, often in public, setting up a chain of command and influence.
Wizards rule in a magocracy, and usually the most powerful wizard is at the very top of the food chain. Arcane spellcasters are at the head of all power and are given the lion's share of the rights and privileges. All citizens who can't use magic are automatically second class and other kinds of spellcasters aren't always welcomed (namely divine magic users and sorcerers).
Settlements that are ruled under military law generally spring up around supply points and places of defensive importance. Some towns are seized by enemy armies that decide to stay and there might not be anybody around to stop them. Others are taken over after riots and civil unrest.
Kings and queens rule by force and by the power of divine right, which insists that they were born to rule and that their blood makes them worthy. Monarchies continue down through royal family lines and power is passed down to blood relatives (most often males). Given the various races that can intermingle with each other, sometimes kings are more capable because of inherent abilities (aasimar often make stately and charismatic kings).
A plutocracy is run by the wealthiest people in the land, whether they are born into the "right" families or they acquire their wealth some other way. And why not? They know how to generate resources, they have good luck, and they must have strong, worthy characters to be so successful. Or at least that is what many assume. In such a society, economic status means everything, with greater rights afforded only to those who can afford them.
Theocracies are run by religious authorities, namely clerics or druids. There is usually a single leader at the top but their children are not always assured the right to rule, as in monarchies. The rulership can pass to the next cleric with a strong link to their deity, depending on the way the theocracy is run. With the magics that clerics can attain, theocracies can have powerful rulers, indeed.
An alignment for a city tells a Dungeon Master what the overall feel of the city is like, and how various things are run (the government, businesses, and to some extent home life). Getting the feel for a place can help with plot hooks, non player character creation and consequences for player characters.
The entire world isn't going to be lawful good or chaotic evil; those are only the extremes. There are bound to be places in which people turn the other way and don't want to be involved in things that would put them at risk. A lot of places, in fact. There are bound to be places in which the letter of the law is as terrible as the crimes punished. There are bound to be places where keeping order is more important than personal freedoms. Some of us have lived in places like those I just mentioned. They are realities here, and they make sense in Faerun and other D&D worlds, as I hope to illustrate here.
A lawful good city is rather easy to portray. Lawful good cities care about the law, life, and the people. Lawful good cities seek to aid the masses and further the glory of the kingdom. Lawful good cities shun crime and use war to protect and defend (themselves and others).
A chaotic evil city is just as simple to describe (if indeed any city can be said to be simple). In a chaotic evil city, it's every man for himself. Assassinations occur and changes in the power structure are likely to be caused by and/or followed by violence. There are very few enforcible laws and any policing force is more likely to abuse the populace than to protect them. Chaotic evil cities will bully their neighbors and destroy nearby towns that don't swing their way.
But what about the other kinds of cities?
A chaotic good city leaves more leeway in the law for the freedoms of the individual. The emphasis is on teaching people to be good without having to force them to be good. Personal and business freedoms are important (merchantfolk have a laissez faire attitude towards the government). There might be a decentralized government or an alliance with other chaotic good city-states. Needless to say, the sovereignity of a chaotic good city is not negotiable. A chaotic good city has a live and let live attitude, and is slow to engage in war due to the debating and personal politics that flare up in response.
A neutral good city strives to do good by its citizens without encroaching on them. A neutral good city supports laws only so long as they benefit the most people possible. Government is seen as a necessary evil, and a neutral good city holds its government accountable for the welfare of the people. Neutral good cities do not participate in the slave trade and women are likely to have a lot of freedoms that other cities wouldn't allow. Neutral good cities are often havens for beings of various races that are hunted or banished due to prejudices. Neutral good cities only go to war when it is absolutely necessary and when good can be done no other way. Great diplomats and ambassadors are sent from neutral good cities to act as intermediaries across the land.
A lawful evil city values order and rules, and uses force without guilt in order to enforce the law. A lawful evil city is stratified according to economics, race, and gender (to name a few categories). There are "inferior" classes and they are tolerated only because of the value of their labor (which they are never fully paid for). There is often slavery amid the elegance of the wealthy upper class. In a lawful evil city, however, subtlety is the name of the game. The keys to breaking the law are stealth and wealth. It is shameful to be caught in a bad deal, and punishments under the law are harsh. But if someone ascends to power without getting caught and through the purchase of justice, they are respected.
In lawful neutral cities, the need for order is paramount. Good and evil are not as important as the functionality of society. Those who interfere with the functioning of the city and its laws are punished in a timely manner, regardless of their intentions. Lawful neutral cities are run by a multitude of formalized codes of conduct. Laws are enforced everywhere in a lawful neutral city - in the home, in the court, in the government and in business.
Neutral evil cities are centered around ruthless efficiency and advancement. Governments are formed out of necessity, as are most alliances of any importance. The city exists to expand and improve its position on the world stage. The city will do whatever it must to gain what the leaders desire: more land, more wealth, more supplies, more slaves, what have you. Power and wealth are most highly respected. If the payoff is great enough, betrayals will happen at any level of the government. If said betrayals do not interfere with the running of things, they are not punished. Power is not based on social station or heredity but on ambition. Anyone who has the ambition and the cunning can attain legitimate, even government-sanctioned power in a neutral evil city. Neutral evil cities espouse the motto of "The best man for the job will get the job regardless." Regardless of station? Regardless of morality? Yes.
Consider the example below, taken from Terry Pratchett's Discworld series. It is a perfect description of a neutral evil city that is evil due to sloth, as opposed to evil borne of active malice. The Patrician, a lawful evil ruler, talks about his view of his city Ankh-Morpork and the world in general:
"I believe you find life such a problem because you think there are the good people and the bad people," said the man. "You're wrong, of course. There are, always and only, the bad people, but some of them are on opposite sides." He waved his thin hand toward the city and walked over to the window. "A great rolling sea of evil," he said, almost proprietorally. "Shallower in some places, of course, but deeper, oh so much deeper in others. But people like you put together little rafts of rules and vaguely good intentions and say, this is the opposite, this will triumph in the end. Amazing! ...Down there," he said, "are people who will follow any dragon, worship any god, ignore any iniquity. All out of a kind of humdrum, everyday badness. Not the really high, creative loathesomeness of the great sinners, but a sort of mass-produced darkness of the soul... They accept evil not because they say yes, but because they don't say no." - page 337 of Guards! Guards! by Terry Pratchett
Chaotic neutral locations are very volatile to live in. Laws are not nearly as important as consequences, and if consequences are light, lawlessness reigns. Crime often runs rampant in chaotic neutral cities, as everyone is out for themselves, including the policing forces. Some chaotic neutral cities are run by crime associations that do not have to be very secretive about their dealings. Chaotic neutral cities will often deal with rival suppliers of goods as well as with rival kingdoms. They switch alliances at the drop of a hat and are known for their selfishness in surrounding areas.
There are no true neutral cities. Masses of people do not lend themselves to balance easily. There may be smaller groupings (small tribes at best, a family cluster perhaps) that govern themselves outside of a city and according to their own laws. Schools of monks, groups of druids and perhaps some elven gatherings consider balance in everything to be most important. An elder or a group of wise folk are usually the ones who decide major courses of action in true neutral clusters. Such groups are very rare and will be as likely to stay away from the world stage as to play on it.
Putting Them Together
You can mix and match governing systems and alignments for maximum effects and to ensure that each place is distinctive. For example, a lawful evil council might use bureaucracy, obscure legal loopholes, and red tape to attack their enemies, regardless of how the city is affected overall. A lawful good council, by contrast, will be more likely to have open and transparent meetings and to close loopholes that allow for mean-spirited abuses. Such a setup will affect NPCs, plot hooks, rumors, and many other things. You can even randomly roll for spur-of-the-moment combinations and to give yourself a storytelling challenge, too.
It will lend to the realism of your campaign to consider these things and it will definitely keep your player characters on their toes. They won't know how the cities and towns they run across are governed until they're probably too close to just back out. In order to know that the world is beautiful, you have to show the other shades possible. It may seem like I am just trying to give DMs more to do. I assure you, I don't do much more than is necessary to run an entertaining game. I think that these considerations can be shortcuts, and they can also be points of inspiration. Definition, personality, realism, options - politics and alignments can help add all of these things to your game.