Its honestly a very small facet of the game, and more so used to bootstrap your company/Army’s finances until you gain lordship of towns and cities (and thus collect rents).

But to try to explain how it comes together anyway:
So towns specialize in producing a single type of raw resource (grain, ore, grapes, sheep, etc) and they sell those goods mainly to a single city. A city will have 2-4 towns “feeding” it resources, and so if a city has 3 towns that bring it grain, then you’d expect the grain price to be cheaper than in a city who’s towns produce ore.

Next level, if you have two neighboring towns one producing ore and one with grain, chances are there will be a stable (and relatively low) grain price in both with reasonably high population (pop growth is primarily boosted by excess food). Imagine now an enemy army rolls up and burns all the grain towns and seiges the grain city (traders can’t enter a sieged city). After a week, this would lead to MUCH less grain in the ore city, thus prices spike.

So you, an enterprising new player with a dozen men and some spare horses, load up with cheap grain from somewhere else on the map and make a run to the ore city, selling grain at an inflated price.

Again, this general strat is good for bootstrapping the money to build a medium warband, but generally falls away as a viable source of income once you leave there early game.