Just to check, a space with a settlement (a Town or a City) should never have a fortification (a Tower or Castle) on the same tile? Nor should there ever be more than one fortification in one tile?
Correct on both points.
If I have a level 4 red tile with two armies on it, could I build a tower there, then build a castle the next turn? Then cultivate the space later on in the game down one step at a time to a level 1 tile, and each time the tile is cultivated the Castle remains after the tile replacement? And then as a level 1 tile if I change an army into a settlement (a Town is required first), the castle I'd had all that time would be removed, since you can't have both a settlement and a defensive structure in the same space?
And correct on that too. Provided there's no settlement in the tile, a tower or castle can be played there. Subsequent cultivation does not remove the fortification from the board. That only happens when an army settles to create a town.
Of course, if you've been playing a variant of these rules, I'm sure Jack would be interested to hear what you've done and how it's affected play.