To be clear, I advocate using OSM’s “well understood” tagging (at least as I understand how it is done in the USA) of using place=* (town, village, hamlet) based upon size and importance. I realize this is still somewhat fuzzy, but it does give some flexibility to both very densely and very sparsely populated places to “skew towards importance” or “skew towards accuracy.” By accuracy here, I mean “hamlet less than 200” or “village as less than 10,000, and often with a small commercial center.” In the USA, we use United States/Tags - OpenStreetMap Wiki , which has taken at least a decade of careful hammering and craft to achieve the delicate consensus that it does, which largely works. Australia might use that as a guide, but it could be slightly different or radically different. Same for other countries.
Again, and very much agreeing with @pnorman, the tagging best reflects primarily importance, but this is certainly correlated with size in comparison to nearby places.
In short, it is complicated because these choices really should be localized. But this must be both understood and agreed to by a usually national-level (at least “regional”) community for this to happen well. We’re still not “done” in the USA with doing this as best we can (witness the boundary between New York and Vermont in the thread the OP refs), but because we use that wiki I reference above (and many of us in the USA took some time to hammer this out), it largely works. And gets better. And even gets adjusted (as Vermont will because of the ongoing discussion) when needed.
It wobbles because of misunderstandings, then corrects. The long-term trend is “the sweet spot we mean it to be” (by consensus reached in a USA-centric wiki).
Will put this out for a wider general discussion after working out a few points, what would a reasonable comment to include in the wiki be something like:
“While taking tagging by population size into account, when tagging towns etc in sparsely populated area, each towns relative importance to that area could also be considered e.g a village with only 200 people, but with a service station and/or store etc, and with no other population centres close by could be tagged as a town; while a big town (e.g. 5000 people, but with doctors / hospital, a secondary school, larger shopping area etc) could be a city”
On a hunch stumbled on the tag authoritative=* , 11,688 uses minus 1 in the Netherlands and no wiki. They look to be the local heart in an administrative structure, the lowest albeit, the local ‘where you go when you need something more than beans and fatback’.