Dang! You can tranform a city square after the city is built? I never thought to even try that. I assumied it was like the mine thing, where if you didn't start the mine before the city was built, you couldn't do it. I don't know if that has any practical application, maybe in an OCC game or something, but I guess that's what I get for assuming.
Tim it does have a very practical application, and that is the "Run to the Hills Defence strategy". If you have a well founded city that is suffering from numerous attacks, transform the land under the city to hills or mountainn and gain the defensive bonus, particularly helpful for coastal cities under bombardment.
However, I must admit that I have never tried it, I have only ever tranformed a few tiles in total, it takes so long that it barely seems worth the effort, I've only done it late in the game when I have a few engineers wandering around with nothing to do.