When a city falls into the hands of an enemy side, the conquering side can choose to sack the city, reducing it below level 1 so that it no longer functions as a city. The resulting site is similar to ruins and can randomly pop Barbarian units, gems, and Magic Items. The city site may be claimed by any side and rebuilt.
Sacking a city results in a gain for the sackers. So far that gain has been mentioned in terms of Shmuckers, though it could actually occur as some kind of good or gem and simply be valued in Shmuckers.