Population is the total number of citizens in all of a players castles and outposts, as determined by the number and level of Dwellings and Town Houses. Military units do not count towards population.
Population serves the purpose of increasing tax revenue. The greater the population, the greater amount of money collected from taxes. However, population also negatively affect public order, slowing down the production of resources. The greater the population, the greater the effect. There are numerous ways to counteract this, most commonly by building decorative items. (Town houses that can be bought using rubies offer a better population/public than normal dwellings but are often not used due to their high cost.) In addition, for every 5 population, there would be an Armed Citizen to defend incoming attacks.