Villages
Build houses close together and they become a village. You do not place anything to make it happen, and there is no marker to lose.
How one forms
Two houses belong to the same village when their beds are within about 40 blocks of each other, and that chains: if A is near B and B is near C, all three are one village, even when A and C are far apart.
So a village grows the way you build — outward from what is already there. A long street of houses 30 blocks apart is one village, however long the street gets.
The centre sits at the middle of the beds, and the village reaches from there to its furthest house plus a little margin.
It disappears if you tear it down
A house exists because of its bed. Break the bed and the house is gone, and the village recalculates without it. Break every bed and there is no village left.
In Minecraft the village centre is a thing that stays put. Flatten every building and the game still treats the ruins as a village. Here the village is worked out from the houses that exist at that moment, so there is nothing left behind to be wrong.
What it changes
NPCs without a house stop wandering off. Previously a homeless NPC drifted — each stroll started from wherever the last one ended, so it got further away indefinitely and you had to go and find it. Now it strolls around the village instead.
The limit is loose on purpose: an NPC still leaves the village to work, to fish, or to fetch food. It just will not wander away for no reason.
Guards patrol the edge. A guard with nothing to fight walks a circuit around the village boundary, which is where trouble comes from. A guard with no village stays where it is.