It means instead of them giving you gold, settlers, or caravans, they turn into a city. If you are lucky enough to find a ton of camps during a new game, you start with a heck of a lot of cities. They start as a size one city though, and are usually tough to defend.
You also get 50% trade bonus from all captured cities, so the mongols can get some good cash flow later on if they are aggressive.
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