I think as a general rule of thumb (but don't quote me) any Cities below Chapter 4/5 that become inactive are deleted/moved on the map to make way for new players. However if any Diamond Purchases have been made, the City becomes a premium city and remains for evermore.... Inactive Cities are a bit of a nemesis, certainly for Fellowships.
That was the old rule, they changed that something like half a year back? Maybe more? Can´t remember when it was. They said they updated the rules then, that both higher chapter and premium cities can be taken off the map, not deleted. They get kind of put into storage and can be placed back on the map (in a new place of course, because their old one is most likely taken by then) if they ever become active again. Now again this was not very well communicated information, so the details are a bit shady. But as much as I said so far can be found here on the forum ( I assume it would even be in an announcement, but I certainly remember having more than one discussion about this, unless it got deleted of course...)
In actual gameplay it basically never happens (say maybe 1% (random number made up by me) of applicable cases). Again never got really communicated why, but I assume it is, that the automation process sucks. Either they never got it to work reliably at all or at least not well enough that they trust it. Which basically means they still have to manually check every single case (that last part is my guess, not official information). So I suppose they do it when they have an intern sitting in a corner with nothing to do or some such... Otherwise it simply doesn´t get done. Work intensive and low priority don´t make a good team for getting stuff done...