The old definition as I understand it of village, town's and citys was due to the size of the church. So a city would have to have a cathedral, town a large church and village a small or no church. I think now its based on the number of people etc.
There's no reason why a town can't a church as large as a cathedral, in fact I'm sure there are cathedral towns. A town usually has a local authority which a village does not have.