Its honestly a very small facet of the game, and more so used to bootstrap your company/Army’s finances until you gain lordship of towns and cities (and thus collect rents).

But to try to explain how it comes together anyway:
So towns specialize in producing a single type of raw resource (grain, ore, grapes, sheep, etc) and they sell those goods mainly to a single city. A city will have 2-4 towns “feeding” it resources, and so if a city has 3 towns that bring it grain, then you’d expect the grain price to be cheaper than in a city who’s towns produce ore.

Next level, if you have two neighboring towns one producing ore and one with grain, chances are there will be a stable (and relatively low) grain price in both with reasonably high population (pop growth is primarily boosted by excess food). Imagine now an enemy army rolls up and burns all the grain towns and seiges the grain city (traders can’t enter a sieged city). After a week, this would lead to MUCH less grain in the ore city, thus prices spike.

So you, an enterprising new player with a dozen men and some spare horses, load up with cheap grain from somewhere else on the map and make a run to the ore city, selling grain at an inflated price.

Again, this general strat is good for bootstrapping the money to build a medium warband, but generally falls away as a viable source of income once you leave there early game.

Bonus factoids cause I’ve got time to kill: The game is very open ended. If you just want to be a merchant, well, I suppose no ones stopping you. But the course of action you’re nudged towards is to raise a warband and join (or build) a faction and conquer unite all the cities under one banner.

With that, I’d define the goals/stages of the game as:

Early: building a small company big enough to be helpful to you faction when fighting alongside other lords. Goal here is to buy a few workshops inside your own faction’s lands (which grant passive income).

Mid-game: you’re working to build a fighting force that can solo other mid-large forces, while obtaining / managing a city or two for your kingdom (this is where you manually trading starts to not yield enough income to keep your army paid). Goal is to become a significant political player in your faction and to gain as many cities as you can for yourself.

Endgame: by this point, you should be leading a faction. For combat, you’re gathering multiple vassals into large army’s to take key enemy cities. You’re managing the wars that spring up and determining which vassals get which cities. This is where you can finally make real territorial gains for your people.