Okay, so you know how sometimes you live in a big city with lots of people and sometimes you live in a smaller town with fewer people? In Russia, they have different groups that they put these places into based on how many people live there and what kind of things are in the area.
The first group is called a city. This is usually a really big place with lots of people, tall buildings, and lots of stores and restaurants. They also have things like big hospitals and universities.
The second group is called a town. This is a little smaller than a city, but still has a few thousand people living there. They might have some stores and restaurants, but not as many as a city. They might have a school, but probably not a university.
The third group is called a village. This is even smaller than a town and usually only has a few hundred people living there. They might have a small store or a post office, but that's about it.
The fourth group is called a settlement. This is the smallest of all and usually only has a few dozen people living there. They might not even have a store or a school.
So basically, the classification of inhabited localities in Russia is just a way for people to talk about and organize different places based on how many people live there and what kind of things are in the area.