Colonies are capital sides ruled by Viceroys or Governors and are closely linked to a parent side to whom they send tribute in the form of Shmuckers and popped units. Usually this parent side is called an Empire.
Colonies are not fully sovereign sides. King Posbrake at one point complained when his parent side of Delkey was being very nosy and meddlesome in his side's internal affairs, saying that Homekey was a sovereign side and not a colony, and could thus conduct its internal finances as it pleased. The rulers of colonies must not have full autonomy in their finances, military, or internal affairs; having to take orders from their parent side.
Known Colonies and Colonial Sides
Empires using colonies seems to be a viable strategy to avoid a "too big to fail" supermassive Side with so many cities it enters the diminishing returns point. Having multiple, militarily weak but high earning smaller sides tithing money to an imperial central side would allow for the parent to fund a massive military to protect the colonies, at the expense of immediate, direct control.