This varies around the world. Here is an example in New York State.

Whether a municipality is a city, town or village is not dependent on population or area, but on the form of government selected by the residents and approved by the state legislature.

Cities:

a city is a highly autonomous incorporated area usually contained within a county. It provides almost all services to its residents and has the highest degree of home rule and taxing jurisdiction over its residents.

Towns:

Towns provide or arrange for most municipal services for residents of hamlets and other unincorporated areas, and selected services for residents of villages. Towns lack an executive branch of government.

Village:

A village is a clearly defined municipality that provides the services closest to the residents, such as garbage collection, street and highway maintenance, street lighting and building codes. Some villages provide their own police and other optional services. Villages have less autonomy than cities.

Hamlet:

A hamlet is a populated area within a town that is not part of a village. A hamlet has no legal status… and depends upon the town that contains it for municipal services and government.

http://en.wikipedia.org/wiki/Political_subdivisions_of_New_York_State

Here is another explanation:

It’s best to use dictionary definitions in questions like these. According to the OED, a hamlet is a group of houses, or small village in the country, especially a village without a church.

A village is a collection of dwelling houses, larger than a hamlet but smaller than a town. And a town is an assemblage of buildings, public and private, larger than a village and having more complete and independent local government. So there you have it.

Hamlet – small, beautifully formed, but Godless

Village, bigger with a little organisation and a church or two

Town – bigger again and organised and administered.

Size, it seems, does matter…

http://www.funtrivia.com/askft/Question44470.html

Here again is another:

What is the difference between a city and a town?

In the United States, an incorporated city is a legally defined government entity, with powers delegated by the state and county and created and approved by the voters of the city. It can provide local government services to its citizens.

In most places in the U.S. a town, village, community, or neighborhood is simply an unincorporated community with no governmental powers. Usually, county governments provide services to these unincorporated communities. Some states do have official designations of “towns” that include limited powers.

Generally in the urban heirarchy, villages are smaller than towns and towns are smaller than cities but each country has its own definition of a city and an urban area.

http://geography.about.com/library/faq/blqzcitytown.htm

Now here is something else to consider,

In Sweden and Denmark, a village of 200 people is counted as an “urban” population but it takes a city of 30,000 in Japan. Most other countries fall somewhere in between. Australia and Canada use 1000, Israel and France use 2000 and the United States and Mexico call a town of 2500 residents urban.

http://geography.about.com/library/weekly/aa060997.htm