Whenever there is an unclaimed territory in the game, the first Empire to set their Outpost there is the one putting a claim on that land, and from that moment that piece of territory is considered to be a property of that Empire.
Outpost is the first step towards expanding your Empire as it allows you to control resources from the claimed land.
You can create an Outpost with an army unit, and later they can even become cities on their own, but they can also be destroyed by any player, including the one who owns it.
Outposts can be relocated within its territory, and they can be upgraded to cities after you leave the Neolithic Era, allowing you to further develop the city and the region.
But, there is a limit on how many cities a player can have at one time (which steadily grows) and everything has its own cost (influence, stability, and more) and so, you will constantly need to weigh if your economy and population can handle another city, or if it's maybe for the best to attach an Outpost to a city, or even downgrade a City to an Outpost.
Here's how you can do both of these things.
How to attach Outposts to a City
To attach an Outpost, you must first click on a chain symbol, which can be seen next to each Humankind city and outpost name.
When you click on a chain icon of a city, a list of nearby Outposts will appear, and a list of cities will appear if click on the chain button next to an Outpost. Just click on the "Attach" button and the process is complete.
Attaching an Outpost to a City will turn that Outpost into Administrative Centre, but it will cost you Influence, and the city will receive -20 Stability points per territory. The further the Outpost, the more it will cost you to attach it to a City.
That's why it is important to develop a strategy for your expansion as soon as possible so that you have a clear picture of which Outposts you want to become Administrative Centres and which will you develop into cities, and distribute them accordingly, as each mistake or change of mind will cost you Influence points and Stability.
Absorb Cities: How to downgrade City to Outpost
The maximum number of cities that you currently can have can sometimes put you in a situation where you will need to choose which cities will remain cities, and which will be downgraded and merged with another city.
If you want to upgrade an Outpost into a City but you are currently hitting the limit, later in the game, there's an option that will allow you to merge two cities into one. One city will be absorbed into another, and that city will become an Outpost (Administrative Centre) of the parent city.
A city that wants to absorb another city needs to have the "Military Architecture" technology in the Medieval Era. If you have researched this technology, then whenever you click on a City an option to absorb another city will appear. Simply click on it, and the city will be absorbed.
Keep in mind that it will cost you Influence points, and the number will increase depending on the number of Districts the absorbed City contains.