I did it, by coincidence, I just happened to press my faction's name while in diplomacy screen. It works just like the provinces (I've known that one for ages though).
Simply, click on the name of the city to change city name.
Or on the name of your faction in diplomacy or faction screen to change faction name.
Kind of cool, consider that you are Venice and conquer Italy.
Change name to Kingdom of Italy. Or if you want the Eastern Roman Empire to simply be the Roman Empire. Scotland conquers big time and wants to be Gaelic Empire. Any catholic faction wants to settle in the Holy Land abandoning it's homeland become Kingdom of Jerusalem. Etc, etc, got it?
EDIT: I found out this only works in hotseat mode, better be playing kingdoms or a mod with hotseat ability!




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