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It's a strange sort of oligarchy, decided not by politics or grand speeches, but by power and training ability. The champion reigns over his nation with ultimate executive power. The Elite 4 act as the Champion's "guard of honor", and extensions of the champion's will, going where they are needed to enforce the Champion's rule. However beyond basic regional law, most cities and such are left up to their own devices. The gym leaders are hand-picked by the champion to guard over their towns, being chosen as the strongest trainers around within a type specialty. They act as enforcers of the champion's rule, protectors of the town, and sometimes have mayor-like powers (depends on what they want really), as well as pruning all but the exceptional from the flocks of trainers looking to become the next champion. Towns and other settlements stay nice and condensed so that everyone is able to support each other and is at far less risk of wild pokemon attacks (Example: raticate can bite through fucking steel. A single one can easily smell an unprotected food source and bite a limb off a person to get at it. Risks of attacks like these are why you see almost no settlements or houses between towns. So living outside of the cities you're not in any gym leader's jurisdiction/territory, but you're also on your own and probably dead without some good pokemon). Apart from gym leaders, town can pick and choose how they're led, whether by 1 local official or by a council or by a sheriff or just the gym leader or whatever, it's what the people decide in that case.
