Low materials are easier to fix with lots of improvents and your population bonus, low food is very hard to fix.
I tend to agree with Inphobia here. More food tends to be more important than more materials, especially for your first city or two. I have, on occasion, (for later settlements) settled for a city-site that only added up to 7 total (such as 4*3). (This can especially pay off, on sites next to a river, where you can later add "docks" and "water mills" as improvements.) I have also never seen a city-site that added up to more than 9 total (5*4 - the best; or 4*5). However, I thought that I had read somewhere, in another forum thread, that it is possible for a city site to be 6*3, or 3*6, but I am not positive about that ...
You raise some good issues, Humility, regarding the limitations of outposts. As much as I like them, they do have some significant limitations too (as opposed to cities). Of course, they do not permit you to raise troops there, and you can't build improvements inside them. Also, I think you are right, that they do not "heal the land" (change dead trees, or barren brown land, to green forest). However, I don't really think that matters, except for appearance. And, they DO extend your influence (kingdom boundaries) and your road network (once you have the required civilization technology) ...
On the other hand, resources (to be captured) can include: iron, shards, crystals, gold, grain (!), horses, wargs, drakes (!), apiarys (bee hives), clay pits, orchards, and one or two other things. That means, that there are a LOT of useful places on a map (including sites where it is NOT possible to build a city), where there will be useful resources to capture.
Incidently, if you play a human kingdom, the game will tell you that you are NOT able to use "drake lairs" to raise drakes (dragons). However, that is NOT true! At least, in the Beta 2, version 0.86, you CAN raise drakes, even with a human kingdom. This may be a bug/mistake. Perhaps it will be corrected in the Beta 3, which is due to be available around April 12. But I would continue to hope that human kingdoms will be able to raise drakes, if they build a city or outpost in the vicinity of a drake lair. In any event, outposts are a good tool to use, in many cases. (Remember, your Attack and Defense capabilities are also raised by +25%, within your own kingdom boundaries.)
Thanks for starting this discussion thread, Humility! I hope we hear more views ...