How does it work exactly? Are there rules such as who I must give the cities to? Do they have to go back to their original owner? Can I simply gift them to a nearby vassal? Or can I simply gift them to anybody?
As Germany, could I switch on occupation, conquer Alexandria and Cairo and then give them to, say... England? Does granting independence give the same stability bonus?
Firstly, I believe that there is no difference between liberating a city and trading a city. Liberation sometimes comes up as a diplomatic option, especially if the city is in another civ's core area.
Secondly, as to which civs will accept various cities that you own, there are two factors that seem to play here. The first is core area ownership. I believe that civs will always accept cities in their core areas. The second is attitude. Civs that fear you (i.e. basically at capitulation threshold) will accept
any city, totally regardless of if it is a fishing village in the Arctic or a major metropolis like Constantinople and regardless of how close it is to their capital. Your vassals act in a similar way. They will accept cities if they fear you, but the less that they fear you (as you gift them cities for instance), the less likely that they will accept your cities. In this way, your vassals may well quickly reach a threshold that they are no longer happy to accept any new cities from you.
Thirdly, you personally need to have to have a lot of cities to get a stability boost from giving away cities. I've never seen an explanation from Rhye as to what the formula is, but from experience you need well more than 10 cities and I would say more than 20 cities to see a stability rise from giving away cities. This is balanced in part by the stability hit that you will incur when the check (every three turns) to see if your economy has risen or fallen takes place. As your economy will have fallen due to giving away cities, you will need to give away more cities to maintain an overall stability advantage through this method. It is a quick cycle between stability rise and stability fall during this process.
To maintain a stable empire during a conquest victory attempt during anything other than the Ancient era (the reader should really take a close look at the
conquest thread for more on this by the way), it is often necessary to conquer cities more than once. After the initial conquest of a particular continent, the most "trashy" cities can be gifted away more than once, each time gifting them to a new target during the middle-pounding stage of your next attacks so as to temporarily raise your stability, before then recapturing the ex-gifted cities as well as the last few cities of said target civ. Usually, any cities that you gift away are unable to build any units between the time you gift them away and the time that you want to reconquer them, so any mobile unit can usually waltz straight back in without opposition.
It's a bit of a careful balance when you get to this stage of conquest attempt, but it can certainly be done with enough careful planning.
