I think it has to do with the size of the population. I'm not sure about the numbers, though. I grew up in a town of 500 people. I always referred to it as my "town." Then I was corrected. I was told it was a "hamlet." Then next size would be a village, then a town, probably with at least a thousand or so people Next would come a city, probably in the thousands.
But I live in the U.S. So it may be different in the UK.
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The creation of eight new cities has been announced.
Eight towns to be made cities for Platinum Jubilee
What is the difference between a town and a city?