Towns and villages differ from each other where their functions are concerned. Villages are mainly associated with production related to agricultural activities. The surplus is used by the villages in exchange for other commodities, which they themselves do not produce, from other villages or towns. The village, accessible to all others, generally becomes the focal point for exchange of commodities. This village generally develops into a town. Once a town comes up, it acquires one or more of the functions depending on a number of factors. 

1) Processing 

Processing is one of the most basic functions of a town and involves processing of agricultural products, for instance, wheat into wheat flour and oil seeds into oil. The most easily accessible village generally becomes the processing centre. This may have been the reason for the emergence of the earliest towns. 

2) Trade 

After processing, the next level of towns are associated with trade. The towns act as the centres for exchange of processed items or manufactured goods between two or more places. These markets may operate on a daily or weekly basis. Weekly markets are a common feature throughout India. These centres may also specialize in one or more items such as fruits and vegetables, cattle and food grains. 

3) Wholesale Trade in Agricultural Products 

Towns engaging in wholesale trade in agricultural products for the next high level in functional pattern of towns. Transport facility is a crucial factor in such towns. These towns generally fulfill processing functions also. Later, they may develop manufacturing and other services also. They are generally small in size and dispersed, often specializing in one commodity or the other. For instance, Hapur is a wholesale centre for food-grains, Ahmedabad and Tiruppur for cotton, Sangli and Erode for turmeric, Bangalore for silk and Guntur for tobacco. 

4) Services 

In towns, services like education, health, administration and communication, not adequately available in villages, are well developed. Of all these functions, administration is the most important one. A town may be the headquarters of a panchayat union, a state cooperative or a district. Administrative towns also have law courts, police stations, government departments associated with developmental works, etc. Chandigarh is a good example of an administrative town. 

5) Manufacturing and Mining 

Such activities give rise to large towns because manufacturing and mining activities generate large scale employment and give rise to other useful economic activities like trade, services, transport, ancillary industry etc. These activities attract large scale migrations from adjoining regions. Jamshedpur came up around the Tata Iron and Steel Works while Raniganj and Kolar are examples of towns which have come up around mining activities. 

6) Transport 

Transport is a basic necessity for all types of economic activities and for the evolution and further expansion of a town. Many of the towns, therefore, have come up around railway stations or port towns. Railway stations act as the centres for change from road to rail traffic and vice versa and for purposes of trans-shipment, collection, sorting and despatch. Jolarpettai in south India is a good example of a town which has come up at a railway junction. Similarly, the ports act as the centres for change from road or rail to sea traffic. Ports may also develop manufacturing and administrative functions. Kolkata, Mumbai, Chennai, Kandla, Paradip etc., are examples of towns which have come up around ports. 

7) Pilgrimage/Tourism 

Pilgrimage is an important activity associated with travelling and lodging. Thus, at such places transport and lodging facilities also come up. The towns adapt themselves to support a large floating population. Tirupati, Hardiwar, Varanasi, Rameshwaram are some examples of pilgrimage centres while Shimla, Darjeeling, Udagamandalam (Ooty) are some examples of tourist centres.

8) Residential 

Towns with residential functions often come up around big cities where land prices are lower, basic services are cheaper and fast transport links with the main city are available. Sonepat, Faridabad and Gaziabad are examples of such towns around Delhi. These towns have also developed manufacturing functions in recent times. Generally, a town has more than one function, but one or two of these dominate. The functions of a town depend on its location, its infrastructural facilities, and historical and economic factors. The dominant function may be identified on the basis of number of persons involved in that particular activity.