Rob will have to comment on the mechanism involved in supply.

Keep in mind, when creating a supply network, that a unit has to trace back a supply line to it's home city in order to receive any replacements for battle losses and that replacements arrive more slower the further away the home city is.

The exception to this, is that units within the influence of a friendly healing shrine, gain replacements even if not connected to their home city and gain them as quickly as they would if they were inside their home city. This makes healing shrines, extremely valuable during extended campaigns.

I went through a lot of different algorithms when working on the supply transfer mechanic in Hegemony (including replacing it completely between the original and Gold releases) and while I think it does allow for some interesting logistical strategy, there are a few situations where it still doesn't quite work how I'd hoped.

In general, the cities/forts in Gold use a basic messaging system where they can send/receive requests for food from other cities/forts that they are connected with. If cities have more food than they need, they will try to fulfill the request otherwise they will just pass it along. Since cities in Gold also have a limit to how much they can store, they can also send a message saying they want to unload extra food.

In theory, this system does allow food to be passed as far down your supply chain as it needs to, but in practice there's usually at least one city or fort along the way that is under-supplied and stops the flow. For the most part this is intentional, in some early tests when we made food flow too easily, each of your cities just became a tap to a global food reservoir which we found wasn't very interesting to play. The goal with Hegemony was to emphasize the geographic variations in food supply. So, in the end we made the forts/cities greedy (they only pass along their excess) and this created a much more natural falloff in food levels as you got away from areas with more farms.

While I've been pretty content with how the system simulates issues of food concentrations (both production and consumption), I'll admit I've been a little less satisfied with how easy it is to diagnose and manipulate the supply network on a large scale. While you can reduce stockpile levels around areas of high food production so that food is more likely to move further out into your empire, it can be difficult sometimes to get the food exactly where you want. I am hoping these issues should be significantly improved in Rome, as I have reworked the system to focus more on end-to-end connections that make it a lot easier to tell exactly where your food is coming and going to.

I hope that makes it a little clearer how the system works. Feel free to post any more questions you may have.