My big question is this: do the Russian receive no replacements if the Germans do not capture any VP cities? Or would the Russians receive the maximum number of replacements each turn if the Germans have not captured any VP cities? As I read it this seems to be the case so what happens to all those destroyed reinforcements?
Replacements arrive as per the number available on the Turn Record Track (i.e 2 on Turn 3). The Soviet player gets to add an eliminated army onto the Turn track (additional replacement) to come back whenever one of the Soviet's VP cities is captured for the first time. These are in addition to the replacements received from the points made available. You place these replacements on the turn track, starting from turn 3 on-wards and when a particular turn reaches the "Maximum" number of replacement units in its turn box, any additional replacements (due to VP city loss for the first time) are put into the next turn's box. See the example below rule which shows that you always have to leave replacement space on the turn to use the replacement points. When German's capture VP cities on turns 1 and 2, the Soviets can place 2 eliminated armies in the turn 3 box, and then 2 more into turn 4 box (Each time leaving 2 spots open for spending the regular alotment of replacement points (2 in each turn). I hope this helps to clarify this for you.
The other thing is do VP towns not count? In the rules (and the errata) the rules specifically say only cities.
See Rule 3.2. I think it details VP winning clearly.