Here is a good example.
http://i.imgur.com/uWQVD.jpg
First, you might notice, that my Capitol doesn't have fresh water, because I moved it 1SE to a hill to get a 2nd fish. Had I settled in place, it could not have been used.
This also provided me with the option to place a city to my left, should some resourses appear in that direction.
Wow. Good thinking on my part, because Copper and horse appeared west of my city.
I don't know how aggressive the barbs are in this mod and I might want to do a rush, so my 1st city goes there.
Unfortunately, I can't mine the copper, because I can only build 4 tiles from my Capitol. So, my first new city has to lose freshwater, lose production from the copper mine and it can't steal the Fish from my Capitol, when I want it to pop up faster.
I think, Fine. I'll deal with it. I'm trying out this new mod (new to me anyway).
ok. I tag where I want my next cities to go. Since, I have no idea where some of the resourses will pop up in the future, I'm placing each city 4 tiles from each other with some overlap, if possible.
I use one of my clubmen to recheck around this mountain for enemy expansion. None.
My next settler pops out. I escort it with a clubman. I get to my plotted location to get freshwater a gold and to grab any other tiles my other cities can't get. When I get there, it says I can't build there, because I am 3 tiles away from a city??? I recheck my distance. Nope, I'm 4 tiles from my Capitol and 2nd city. wth?!?
Now, I'm getting really upset.
After this screenshot, I scouted with my clubman to see if America had dropped a city after I scouted. YES, he did! Two tiles east of the mountain, next to an oasis, I found an American city.
I am now seriously pissed off.
By the AI building his city there, it messes up my entire radius 1 plan of new cities.
I had to drop my research down to be able to pay for the 1st new city. Now, this one would have to be placed further from my Capitol, increasing my distance cost. The closest I could place it (the blue circle the game indicates) will be 6 tiles from my Capitol, not 4 and leave a gap of land 1 tile wide at radius 3 from my Capitol. I have no idea what important resourses will appear there and am not happy.
My next city was to get the potato 4 tiles NE of my Capitol.
This is now 3 tiles from the American city, so it can't go there. I came up with this location based on where my gold city was to go and the coastal city to the south was planned.
If, I build the city on the coast, I lose the potato city alltogether.
The only logical place is 1 tile SE of the potato, which means I will lose the southern city.
By the way, this is a standard size map, low water with a friend and 6 AIs. Arabia is to the East of America. So, knowing I won't be able to afford more cities, nor conquer with just my clubman, I quit this game.
We restarted on a large map, hoping to solve the close AI issue.
I hope, you can see the problems this issue creates and why I strongly suggest returning the game standard of 3 tile cities being possible.
In our large map game, my friend exploited this against the AI. He rushed up and placed a city 3 tiles form the AI's copper, severly limiting where the AI could place a city to get it. If the AI placed his city 2 tiles south of the copper, he could get it, but it would be on his Tea and be off the coast to get a shrimp tile. Eventually, the AI got radius 3 on his Capitol and could mine it, but not use the tile.
The 4 distance between cities makes the game about limiting your opponent's ability to gain access to resources, rather than smart city placement and lower city maintenaince. I prefer the latter to the former.
The game is designed with 3-4 city distance in mind. I have no idea how many more problems this will cause. From what I can tell, standard size maps are unplayable for us. I'd hate to see the cramped city limits this would place on players using Small or Tiny sized maps.
(in my recent game as mongolia I have a size 33 city 
