can you take over any city or is the only way you can have a town is to get it from a viceroy

As far as I know, you can't take a city over for yourself. You can plunder it, but if you'd like an own city, you'll have to get one from the Viceroy.
However, I may be mistaken, as I only fight the pirates and am friendly towards cities.

You can only have a town if a viceroy gives one to you. If you capture a town for a viceroy, it becomes a town of his nation I think. If you attack a town on you own initiative, you can plunder it.

That's precisely right, Syme. I also have a question about towns in PR2 and I didn't want to open a whole topic just for that one small question, so I guess it fits here. Here goes: I was under the impression that when you annex a town, you might have to fight a duel and when you annex a G-Town or a V-Town, you always have to duel. Yet, I have just annexed a G-Town, attacking by sea and no duel followed. Well that was a first. Is this commonplace? Never happened to me before.