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As you supply more products the Town status will change from Stagnant to Prosperous. This means more people will want to live here and the town population will increase.
Once it reaches a certain population, you will be notified that it "wants to advance".
You say you've got loads of cash lying around - save it up because advancing towns is expensive (unless you can supply the specific products they're requesting) - and now that the AI competition is in the game, the other towns will reach "want to advance" on their own, and you may have 4 or 5 towns telling you they want to advance all around the same time.
It's always the same products. The first two are bricks and wood boards, afterwards it's always bricks and reinforced wall. I have some factories dedicated to just these and enable them when I need to.