IRC: In the german game guide (and even in the game itself IRC) every small settlement is labeled as a "town", even Iccicle Inn and (lower) Junon, except for Fort Condor.
It's always been that "It's the ENGINE, stupid!"-thingy, in EVERY game there is.
F.e. take the laughable "town" of Utai/Wutai. Stuff like "On The Way To A Smile - Case of Yuffie" shows, that it's MUCH larger than you might think. It's clearly a somewhat large town.
Or take a look at Balamb from FVIII. It's not even a "village" engine-wise. It's whatever you english/american people call something smaller than a village.
Lore wise Balamb City is meant to be the goddamn capital of an entire continent!
So don't judge by your eyes alone
PS: I love this screen from FF VIII - truly showing how big the cities really are.