Quite a simple thing to make trade realistic.
The Trade route
1. Trade routes are basically routes between two settlements of sentient beings who can and are willing to trade.
2. Preferably using existing roads or using water - rivers, seas, lakes, whichever is fastest and most suitable to transport certain goods of certain weight and size. If there is no road or water, through the wilderness from the last point of the road.
3. Routes should be planned and periodically updated when an attack occurs or a caravan goes missing to account for known threats - for example no trade route would pass through a goblin lair or particularly close to one. The traders should always choose the safest route, unless they have enough guards to overcome it. Trade routes should rarely move as there is seldom another way to travel - the merchants should never travel through wilderness unless there is no road to the settlement, and will never prefer wilderness over road, even unsafe one, deeming that the forest will be even more dangerous.
Route reputation
1. An existing route should have a reputation based on a number of factors:
- The profitability of the trade route up until a certain limit, so that merchants with no guards will not foolishly die when it is very profitable but impossible in their case
- The safety of the trade route - known attacks and threats will decrease it, if possible the trade route will move, but as I pointed it before, this should be possible only where there are a lot of roads or a safe river compared to an unsafe road. Raiders, bandits, goblins etc. should also be able to attack passing ships in most of the circumstances so it will not always be a good alternative.
- The length of the route
- The harshness of the route - wilderness obviously accounts for it, but also temperature
2. Route reputation will affect how many merchants will want to choose a certain route. If it is profitable but dangerous, only those well prepared will attempt it. Merchants need a good reason to go on a long journey, they certainly don't want to die, so they should be careful.
3. A perfectly safe route that offers no profit should never have a good reputation, only the most desperate merchants should try their luck here, but should the situation change, they will spread the news and improve the reputation. Or perhaps they might want to keep the secret and profits for themselves?
4. Villages, guard posts, forts etc. decrease threat around them, and prevent some sites from appearing - such as bandit camp. Patrols should furtherly secure a certain part of the road. Civs should be quite inclined to secure their important trade routes and the richer the route is, the more cities, villages and forts along the way should protect it, as they make money because of it.
5. In adv mode the player could be hired by a merchant to escort the caravan, by a captain to join a fort on the way and guard the road along with other soldiers, or could organize his own caravan and trade. Basically, if he's going to travel and does not want to fight, he should choose the safest routes or travel in a larger group.
6. In fortress mode the player could benefit from a good trade route, be tasked with providing security or rob the caravans himself.
Influence on the world
1. Safe routes between sites enrich them both as the wealth passes through, as well the sites through which they pass and stay in. Even if you can produce best goods, you won't make much money if you can't sell them.
2. Route with a good reputation is frequented by merchants and so it should enrich sites along its way, granting them bonuses or something. Also, there should be more taverns than usual on highly frequented routes. Building a fort on or near such a route will provide more guests and more caravans.
3. Good reputation will also make it more attractive for robbers who will try their luck based on some calculation that involves how safe the route is, how desperate the bandits are, and how much wealth passes through the route. A lot of guards will deter them almost completely, but some desperate or foolish bandits might attack no matter what, provided they have where to spawn nearby.
4. Certain civs (like goblins) might try to profit from plundering them, so this will affect where armies, bandit groups etc. are heading to on the map.
To sum up, this will have a tremendous effect on the game and would make the world's progress more realistic. Basicslly, there can be no great growth without trade as not everything can be produced effectively everywhere. This will reflect that in the game.