Outposts vs new cities in Fallen Enchantress

Solution 1:

You can only found cities in certain places on the map. You can build an outpost anywhere, giving you a lot of flexibility because it expands your borders. It allows you to "seize" distant resources (which go to the city nearest to the outpost in question -- you can check which city receives the benefit by clicking on the outpost)

Additionally, you can do some nifty upgrades on outposts, suppressing random monsters within the boarders and speeding up the movement of your units (among other things). Outposts have a specific strategic use in FE. They're not intended to replace cities; when correctly used they complement and bolster your cities.