I would say it depends on the economic system.
- If we have a model based of off the tiles, where each tiles contains resources that can be gathered through a resource gathering operation (RGO), which uses POPs for labour, who in turn consume resource both for sustenance and for production, we would expect a tile to both produce and consume. In accordance with the principles outlined in the famous article on how a game might model a realistic economy, it would be reasonable that the different RGOs or POPs would trade their respective produce with the others of the same tile, through a clearing house in each tile, so that the farmer sells directly to the carpenter next door. Intra-tile trade. However, no tile is an island, wherefore trade would be conducted with other tiles too. Inter-tile trade. Here, it seems reasonable that the tile as a whole would trade with another tile as a whole, clearing house to clearing house, with a POP of specialised traders living of any profit. This POP might be tiny and insignificant, or large and rich, depending on the level of trade. Since long distance trading is dangerous and expensive, trade links between tiles would only be established if it were profitable, which of course varies depending on supply and demand. A poor tile might only have a single trade link, to a local hub. The local hub might have a couple, including one to the local capital. That in turn will have a very strong trade link to the capital of the entire empire, which is the centre of the web that covers the region.
- Another solution is to forgo the principle of intra-tile trade, and make all tiles within a certain distance (a day's trek, so maybe six tiles away, depending on terrain?) from a population centre share a single clearing house, located in the population centre, which is treated as instantly available to all the tiles. One might call it cheating for the purpose of simplification. Only from this central clearing house can trade take place, which then is treated as "between province A and province B", rather than between tile a and b. This system mean losing the realistic intra-tile trade of the former solution, but on the other hand goes well with the principles of a gatekeeper state, and staple cities and staple ports of yore.
- Here, we see how an economic system might come into play with regards to provinces/territories. If tiles a), b), c), and d), are all sparsely populated, with little to trade but low-investment primary goods, they might not afford or want or imagine trading with anyone else than their closest town, A. The other towns, B and C, are too far away, or aren't really in the same economic zone. And so, it makes sense for tiles/villages a), b), c), and d), to be part of the same province as A, and to be separated from B and C. Likewise, it seems reasonable that that isolated mining colony in the middle of the desert would be part of the same province as the only town nearby, which is the only trade partner of the colony, its fundamental gateway to the rest of the world.
- On the other hand, it depends on what we want the territories to be. Military divisions? Administrative divisions? Legal divisions? Economic divisions? Natural divisions? The wiki isn't very clear about this, wherefore I feel a bit lost. While it seems reasonable that a mountain valley be a single province, a single "area", "region", or whatever one might call it, it also seems reasonable to assume that it will continue to be so, as long as people live there why would it grow or shrink, if the valley stays constant over centuries? There isn't really much need for dynamic provinces in such a case. On the other hand, if a horrible war devastates a once prosperous river valley, razing cities and sowing the fields with salt, one might very well imagine several small provinces merging to one or two poor and depopulated ones. If the territories are more of an administrative division, for example for taxation, the divisions would be based of off central planning, and change over time, like those of Rome in ancient times. In some cases borders between provinces might seem arbitrary, like the lines that separate Hoboken from Manhattan, while keeping Manhattan with Queens. There are a myriad similar cases around the world.
- I think in the end I would opt for a system that is dynamic, but still quite rigid. Population patterns, cultures, and economic relations change over time, but only very gradually in pre-industrial times. Here in Sweden, the well-populated and powerful regions that formed the nucleus of our kingdom around the year 1000, are still today the centre of population and power, even though Sweden has grown, and new population centres have appeared. If the system in SotE allowed change, but only at certain intervals, and after a certain critical threshold had been achieved, it might be good compromise between realism and computing efficiency.
I must say that I would have greatly enjoyed the ability to change the constitution of certain duchies in CK2, depending on how the world changes...