Alliance
To form an alliance, you must be a person that has been allowed to (mayor must allow you to by changing settings - or if your the mayor yourself).
Description
Forming an alliance with a town will allow them to spawn at your town or you to spawn at theirs. Being allies also allows the mayor or any other person allowed to make it so allies can do certain things, just like settings for citizens are, but all allies will have the same abilities and cannot have special roles/titles like citizens do.
Method
Right-click a member of a different town
Select 'Form Alliance'
Make sure you are off of a deed or you can't form the alliance.