Creating a town costs money. The cost of making a town can be seen with /towny prices.
To create a town, stand in the location where you want your town to be. Then type /t new <name of your town>.
You are now the mayor (leader) of a town with one claimed chunk!
Your first chunk is called the homeblock.
To see information about your town, type /t.
(!) It's important not to create your town too close to another town. Unless you are in the same nation as them, you will not be allowed to claim near them. Furthermore, it is not possible to claim within 8 chunks of non-peaceful towns (these towns are marked by a castle icon on the map).
If you want a resident to have full permissions inside a plot, you can make them its owner.
To put a plot up for sale, stand inside it and type /plot fs <cost>. The cost can be 0 if you want to make it free.
This allows town residents to buy the plot and become its owner. To buy a plot, stand inside it and run command /plot claim.
Remember that a resident is an asset to your town and it can often make sense to give plots away for free. Residents are likely to leave if they don’t find anywhere to build. Make it easy for new residents to find plots for sale.
Enables PvP inside the plot. This is the only place where residents of the same town can fight each other.
Farm
Allows residents to harvest and replant crops inside the plot, but not place or break any other types of blocks. See /towny allowedblocks for a full list. It also allows residents to breed and kill animals inside the plot.
Embassy
This allows any player to buy the plot, regardless of what town they may belong to. Embassies are used to establish a presence in other parts of the world, just like embassies in real life. Owning an embassy and changing its plot type will still keep you as the owner. For example, this is useful when creating shops in different towns.
Jail
Can host jail cells, which imprisoned residents. See the Jail Guide for more information.
Bank
Required to use town bank commands (/t deposit and /t withdraw).
Quarters are 3D subclaims in towns. They can be bought and sold like plots, but can be far more flexible in terms of shape - being able to span multiple plots, or even part of just one plot.
By default, your town will be an Autocracy where absolute power rests with you, the unelected mayor. If you prefer to experiment with a more democratic style of governance, you can become a Constitutional Monarchy, Direct Democracy or Republic by changing your town's Constitution.
Note that players you invite to your town can see whether it is democratic through /t invitelist.
Before joining a town, you may see what taxes the town has. Run /t <town name>. After joining a town, you may check all taxes that apply to you with /res taxes.
Taxes are paid to the town bank every 24 real-life hours, and are collected before it is charged upkeep.
Mayors can set a town tax with /t set taxes <amount>.
By default, taxes are percentage taxes. Each resident is charged a percentage of their balance.
It is also possible to collect flat taxes. Switch with /t toggle taxpercent. Each resident will then be charged a specific amount of money.
It’s also possible to set tax for each plot a resident owns, run /t set plottaxes <$>.
If you want to be even more specific, it’s possible to only apply plot tax to certain plot types with /t set <shoptax/embassytax> <$>.