A village of 500 can support a general store, a pub or two, and in earlier times a church. Today, because the local jobs are not there, a disproportionate number of its residents will be old, living on pensions .
To achieve economic critical mass that can support a whole street of businesses, one needs a population of 5,000 (at a bare minimum, perhaps 3,500) to provide the critical mass required to support local businesses. The ideal is 7,500 to 10,000 people. More than 10,000 people and governance becomes bureaucratic; people lose touch with their leaders. With too small a local population, not only is the economic critical mass lacking, but life can become too familiar; it does not offer enough contrast and variety to keep life interesting.
On the other hand, in towns of 10,000, the de-monitized support that comes when people know and support each other can be lost. This sort of support best occurs in villages of 250 to 750 people. There people know each other, and there is more compassion and support. When something goes wrong, they do not say "someone should do something about this"; instead they say "let's do something about it", and they do.
This is why it makes more sense to build a VillageTown with a 10,000 population economic and social critical mass, but to organizing it into 20 villages of 500 people each. In each village, the people know each other. They look after each other, and their social network is small enough that it does not tolerate empire building.
The adjoining village structure also provides diversity of culture and reality checking. If we have a single town, and something goes wrong, there is no way to gain perspective to ask if it is endemic of the town structure or situational... caused by some of its people. When we have twenty villages side by side, it is easier to test. If there is a problem with one village, then it's about individuals in that village; if it is happening in many or all the villages, then it is a structural matter needing attention.
People ask what happens as demand grows? The answer is to build another VillageTown ten miles down the road. Once critical mass is achieved, keep the size stable. No sprawl.