Does the tile yields on the location's for cities effect that cities potential or just the starting resources?
The tile yields for the tile on which you place your city is the only tile yields your city is going to get, although it can gain certain bonuses from natural resources in close proximity, or special city enchantments.
Either in terms of this or some general advice on how to go about settling or specialization would be appreciated.
How you want to settle and specialize is of course entirely up to you, I tend to find that essence is the base of my concerns for my own specializations.
It really depends on what your current needs are (lategame) or what kind of game you are aiming for (Early game).
High grain will do you little good since it will take a massive effort to get a city up beyond level 3, so I tend to look upon grain as a "side effect", that said both a level 2 and a level 3 city grants increased Gildar income and more base research.
High materials will make the city construct both buildings and units faster, this is key to actually getting your empire anywhere. If you have high materials you will likely out-produce your opponents, but the quality of your cities and therefore your army too will be slightly poorer, you will be forced to construct buildings that boost gildar income and research income if you aim for an empire-wide high material base, but I find it worth it.
High essence gives you a flexibility to boost each city further into its own specialization, A town with high essence will gain a significant bonus to gildar income (With the right city enchantment), a fortress with high essence will produce higher quality troops (or you can use essence to boost production), and a conclave will gain a bonus to research, and whatever it needs (I don't recall a lot of research spells right now), conclaves do get to produce a fair bit of mana with high essence).
I find that the first high essence spot with 3 materials or more is an "instant" fortress location, so I can switch the city enchantments between production, or the aura's that boost trained units attributes.
My normal setup:
Find one 3 essence spot with 3 grain 3 materials (or something similar, high material and essence is key), to construct 1 "monster" of a fortress to produce units.
Rest of the locations around the globe with 2 or more essence I build conclaves upon (They can increase essence when they become level 3), these will give a boost to research and mana.
All spare locations becomes towns, or the occasional fortress (Since fortresses gain some buildings that boost city defense). The towns in this case will give a bonus to food to all my other cities, and produce some gildar. With this setup I am not roaming the map with massive armies but rather key armies of powerful units.
Hope this helps.