City-states are basically neutral cities of
varying specializations (such as a militaristic city-state) that can be conquered if you prefer, though you can leave them neutral and form treaties with them,
or take missions from them. Forming a strong relationship with a neutral city-state can be very beneficial--becoming buddies with the militaristic city-state in our demonstration meant that the neutral burg would send us free warriors every few turns--but it can also upset nearby civilizations who would prefer to have that city-state's services for themselves.
http://gdc.gamespot.com/story/625324...ons-first-look