Can someone explain the whole 'Online Only' thing to me please? As in will I have to be next to some other guys random city etc?
Not really, when creating a region, you can create a private or public region.
When creating a private region you can invite friends to it
If you create a public region, your region is on the list and people can choose it and join it.
"Online only" because your city is saved on the cloud, everything is saved to the cloud, so when you loose connection, an error message will be there and your game will end after some time. But the game will probably auto-save it before it happens