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Villages become "active" when you build something in the city/area region the village sits in, when you employ citizens from that region, or when you relocate citizens from that region (I think, someone back me up or correct me on this). You can push back this area by placing new areas near the village area, but be careful not to include any village buildings within the new zone or you will have just expanded the activation area. Look at the dots projected onto the terrain when an area's menu is open.
Generally speaking, most village housing is inferior to the residential buildings you can build (worse quality, which caps happiness, and higher pollution, which lowers lifespan), so you will want to replace them soon.
Early on, most people seem to leave villages alone unless they want the free workforce (no need to import from the USSR or the third world). Some players thus build up a town/city to empty out a village without losing the citizens, others may just demolish the village and force the citizens to emigrate (escape) if they need the space for something.
To answer your question, you either build nothing within the village area and leave it alone until you can use it, you give the village some amenities and use the "free" workforce, or you build a modern town and move citizens from the village into it. The second option gets a lot harder on higher difficulties, because it is difficult to build all the necessary infrastructure (water/sewage, power, roads, stations, etc.) and services (shops, hospital, culture, attractions, etc.) before they become annoyed. Generally it is easiest to just build a new town and move citizens from the village into it.
Thank you so much for taking time to clarify the mechanics around the villages for me. It does kind of bum me out that you cant really "build out" these villages in a true sense without a mass exodus of comrades, but I also understand that there is a fundamental game design choice that was made. I will just have to think outside of the box!