Proposed Canon
Colonies are ruled by Viceroys, and are closely linked to a parent Side to whom they send tribute in the form of Shmuckers. Usually this parent side is an Empire. Given that Seaworld has 9 colonies and 29 colonial cities, individual colonies must be able to have multiple cities.
Colonies are not fully sovereign sides. King Posbrake at one point complained when his parent side of Delkey was being very nosy and meddlesome in his side's internal affairs, saying that Homekey was a sovereign side and not a colony, and could thus conduct its internal finances as it pleased. The rulers of colonies must not have full autonomy in their finances, military, or internal affairs; having to take orders from their parent side.
 Known Colonies and Colonial Sides
A colony is presumably a sort of sub-side, which, while quasi-independent, has its own ruler tightly subservient to the parent side.
Evidence includes the fact that King Posbrake told his brother that Homekey, the child side of Delkey, was not its colony while refusing Delkey's demands. It is also notable that the mighty side of Seaworld has a total of 29 colonial cities divided among 9 colonies, and is quite wealthy, meaning it hasn't reached the diminishing returns point.
Empires using colonies seems to be a viable strategy to avoid a "too big to fail" supermassive Side with so many cities it enters the diminishing returns point. Having multiple, militarily weak but high earning smaller sides tithing money to an imperial central side would allow for the parent to fund a massive military to protect the colonies, at the expense of immediate, direct control.