Settling does not destroy the resource. What yields you get depends on the yield of the tile before you settle: If the tile has fewer than 2 food and 1 hammer, the tile is topped up to those levels (cities are always minimum 2 food and 1 hammer), and any other type of yield from the tile is preserved (e.g., +1 faith from tobacco). If the pre-settlement tile already has 2 hammers (e.g., plains hill), the settled city will also have 2 hammers (so, city on a plains hill is 2 food and 2 hammers ). Settling on a grassland stone tile is, on the other hand, worthless -- raw grassland stone tile yields 2 food and 1 hammer, and the yield after settling is still just 2 food and 1 hammer -- not only does the stone contribute nothing, but you can't even harvest the stone or build a quarry for an extra hammer.