From StrategyWiki, the free strategy guide and walkthrough wiki

The user interface for managing is rather crude. FreeCiv has got a much nicer one (but you have many more cities in FreeCiv than colonies in Colonization). That means more micromanagement than there should be.

There are 3 kinds of transport problems:

• One colony produces something, and another consumes it, or is used to send it to the ports. You have to send some transport vehicle back and forth between those colonies.
• There is locally too much something in one place and too little in another, but not on regular basis (food, tools, guns or horses typically). You need to transport on an ad-hoc basis.
• There is globally too much or too little something, and you try to minimize the damage (like spoiling). If you have too much something, sell it. But in case of some goods, like lumber or boycotted product, that may not be an option.

I just realized that selling lumber is not such a bad idea as it seems to be, 1 lumberjack on no-special square (Conifer/Mixed Forest + road, 50% support) produces 18 lumber. Cotton planter on plowed Prairie + 50% support produces only 10 cotton (and likewise for Sugar and Tobacco). If prices of other commodities have already fallen to 1 per unit, lumberjacking for export may actually be quite profitable.

You are going to need a lot of Warehouses, Wagon Trains (one per road between any two colonies plus a few backups), later some Warehouse Extensions and Custom Houses. Each colony has different abilities to produce raw materials, but they have no preference for kind of industry they support. So try locating iron industry near iron factories and textile industry near cotton plantations. It doesn't mean they need to be in the same city, just don't introduce completely weird setups.

After Adam Smith, when factories get +50% free production, industry needs to be centralized. Factories are too expensive to have only 1 person work in them. Level 2 buildings are quite cheap, so it's not that relevant. Compare 64 hammers + 20 tools for Blacksmith's Shop with 240 hammers + 100 tools for Iron Works. Likewise Textile Mill and Rum/Cigar/Fur Factories cost 160 hammers + 100 tools compared to 64 hammers + 20 tools for respective level 2 buildings (or only 56 hammers + 20 tools for Fur Trading Post.

Trade Routes can help a bit, but not much. Indians and foreign units blocking your roads are also really annoying. Would be nice if some idea of borders was introduced, just to keep others out of your roads (or if the wagon trains could pass in spite of other units being on a road, as long as you're not at war).