When the rules say that you start a new city by placing a castle tile that is at least 3 hexes from any other city. This actually means there must be 3 or more empty hexes along a path between the new tile and any existing cities.
Furthermore, cities are neighbors (for the purposes of citizens moving to other cities) if the two cities are 1 or 2 hexes away along paths.
Now, you can never have cities actually adjacent (touching) each other, right? So when they say 1 or 2 hexes away, they really mean that there is 1 or 2 blank hexes between the edge of one city and the edge of the other.
This always confuses me because in every wargame I've ever played, two things are 2 hexes away from each other if there is 1 intervening hex. But in La Citta, if there is 1 intervening hex, the distance is actually 1.
You are correct. The wording is a bit odd, but they are looking at the space between tiles, not counting spaces including the tiles...
While it's counterintuitive to distance counting in wargames, it makes sense in a way since this is not the sort of confrontational setup -- your tiles aren't moving and advancing into enemy territory.