I've found some towns along the way, I figured out the /town [name] command however I would like to know more about them. What their aim is on the server, are they peaceful, do they belong to a nation, what they do to sustain themselves economically, etc.

For this, you would mostly need to speak to them. Different towns do their different thing. Some towns make public infrastructure like Saito Railways, others can be to build, to farm, to war and such.

In terms of warfare, only towns in a nation can be attacked. To attack and to be attacked, you need to have 1 person online in the town and 5 people online in the nation. If your town isn't in a nation, you can't be attacked.

I also would like to know about the nations, are there set territory boundaries between them are they a group of towns spread around the world.

There isn't. Any town anywhere in the world can be a part of any nation, even if that is located halfway across the map. NewEmpire (a nation which will be called 'NE' from now on) claims that any town in the Earth Kingdom are theirs. The leader/mayor is playing as Kuveria from the show so you can see where this is going.

Seeing as nations can't do anything to a town not in a nation, they can't really do much.

How does one form a town, and later join a nation?

You need to have at least $50 and you can do /town new Name-here and poof, new town.

As a mayor of a town you can ask a nation if you can join their nation. Different nations will have different requirements and objectives. Some

Say, if a town is located in the land canon as Earth Kingdom can they join the Fire Nation?

Yes, but you might want to scout out local towns/nations. It wouldn't be wise to join a nation who have enemies within easy reach of you.

or must they be located in the area canon to Fire Nation?

Nope, but see what I said above.

I understand there are wars, and towns may be destroyed during these wars,

There's a general agreement that you don't destroy other people's stuff - only break stuff for access, but if an enemy claims a chunk they can loot your chests and builds. So I wouldn't make houses out of expensive materials if you join a nation because if they claim it, they can loot it.

are towns not aligned to nations protected in a sense?

If your town isn't in a nation then it's essentially protected from everyone not a resident of your town. Joining a nation gives you benefits (land bonus, access to more money and resources, more connections) but comes at the price of your town being attacked.