So, i notice that each time you reach a new evolution stage it says that you can build more castles. If I remember correctly the second evolution stage grants you to build an additional 4 castles while the third evolution stage allows you to build 8 castles.

Sadly, I cannot find it anywhere in the build menu to build castles.

My question is, where and how do I build castles?

This is a very old post, but it feels wrong to leave the question unanswered as there may be others with similar ones, especially as it is very simple.

You need to research Strongholds first in a Research Lab. You need to be Stage 2 to research strongholds, and which point you can build 2 of them (enough to harass or if lucky enough beat a weak opponent). Stage 3 unlocks 8 strongholds. Always check your research list to see if you are missing some crucial technology, otherwise you will not be able to build it.

The stronghold/tower system in The Nations is a unique approach not seen in other games, and has really grown on me. It can be frustrating at first, and combat itself can be finicky and take a long time to build up to, but once you learn how it works and how to use it, especially balancing needs with your economy and trading, it is a lot of fun.

The Nations is like that: it seems like a second-tier game at first with frustrating and perhaps poorly thought out game design, but there is a very well designed game underneath it all and everything makes sense once you learn it. A big issue is that the manual and tutorial do not cover everything and you have to learn the interface and mechanics for yourself. Learning is easy enough to do from in-game tool-tips and exploring and playing the game for long enough.