Work of UANIME5
In most cases, Dominion of the Sword will have a system whereby each settlement can be either a homeland, county or colony. This will dictate things such as which units that can be trained, and represent generally how much control you exert over your settlements. However for the Italians, this is a little different. For Italians, there are only two options: a homeland or a colony. However, a homeland settlement has a lengthy and complex chain that can open up a similar option to a county. Likewise, an Italian colony can grow into something similar to a county.
For Italians, a homeland begins with a simple rural government
This can then grow and allow trade, commerce, agriculture, law and order as well as basic militia units.
City-State
Then you will have to decide if you want the region and its settlement to reach its full potential as a Capitulo or independent city state, or if you wish to cap its power and limit the state as a vassal. A Commune and Contado are less developed states which are more open to outside control, such as from your faction capital.
A Contado, does not have the ambitious flare of a Capitulo state but it is well-ordered and relatively easy to govern, making them good vassal city-states. Nonetheless, it is a fully-fledged city-state and as such is a powerful and thriving community of nobles and citizens.
A Commune will be the typical choice for the majority of your more powerful settlements, it offers a balanced mix of trade and cultural development, as well as government infrastructure.
A Capitulo represents a rival city state within your faction, similar to a County in other faction's governments, but with much greater benefits and risks. Your faction capital should be a Capitulo, but any other city which has this power may easily challenge your faction leader and rebel.
Once you have created a Commune, Contado or Capitulo you can 'crown' your government type by a local council and even here there are more than one option open to you in each case.
Hegemony
If you choose to set up a Republic or oligarchy you can sanction a Palazzo Pubblico (work in progress examples here named 'plazzo'). A republic can still allow a single powerful ruler to rise from the nobles, but the palace in effect gives generic power, authority and influence to your nobles making them collectively stronger although this is likely to challenge your Faction Leader and may set the foundations for a future Civil War.
On the other hand, the option to build a Palazzo Ducale will give you a monarch in the city, raising a single noble to the rank of Doge. This noble, if chosen correctly can be one of your faction's most trusted and useful lords. However, combined with other characteristics and titles his power might gain so much momentum that there will be few nobles to challenge him and he himself could spark Civil War by rivalling your Faction Leader.
Colonies
In place of the colony system used by other factions, Italian states will have a three-tier system open to them, which in fact represents minor autonomous states as they develop. The level of development is therefore incrementally higher in Italian colonies than in Italian homelands, or for that matter amongst colonies of other other factions. These three buildings are used for the government of colonies: 'curatoriae', 'giudicato', 'consulo principati'. The 'curatoriae' upgrades to the 'giudicato' and the 'giudicato' upgrades to the 'consulo principati'.
The Curatoriae is the first stage in colonial government, used when you are taking over a settlement of another cultural background than your own. This period of colonisation will be required to exist for some time in order for you to unlock military units, religious buildings and agriculture. The Curatoriae will slowly convert the settlement religiously as well as estalbishing law and order, whilst functioning as a trade outpost. It is most vulnerable at this time.
The next two tiers of colonies will have higher rates of income, and greater development options than standard colonies of other factions.
The Guidicato is a much more powerful and thriving state than a mere colony, for the majority of your colonies it will be a more than adequate choice. In fact, it may even be wise to cap the colony's development at this level. The Giudice of this settlement can wield impressive power, and you may not want him to become too powerful.
A Consular Principality is an independent state similar to a County. The Consular Prince can easily rival your Faction Leader if he himself does not have multiple titles. A Consular Prince is likely to be a major player in your faction since his power, authority and influence will allow him to run this colony like an independent royal centre. Culture, finance and military strength will be an asset to your faction overseas. However, it must be kept on a tight leash.