I believe it is already the case that civilizations name the surrounding area according to their whim. In worldgen, you will notice that nothing has a name until the civs have been placed. Also
[SELECT_SYMBOL:ROAD:NAME_ROAD]
[SELECT_SYMBOL:TUNNEL:NAME_TUNNEL]
[SELECT_SYMBOL:BRIDGE:NAME_BRIDGE]
[SELECT_SYMBOL:WALL:NAME_WALL]
These tags are on every entity. The entries are always the same, and I have yet to find any in-game references to the name of a road or bridge or tunnel... but apparently they are named. I only assume that by using different variables, one could have civs select different symbols for their cities, as well.
But that's not what we're talking about.
I think it would be nice if each entity had a list of what THEY called things, as McArmok says. Also nice if you only really understood the language that you were born to, to start with, but could learn other languages by immersion and having a decent Linguistic Ability score.
So when you go to another country, initially every name is rendered faithfully from the civ's file, but eventually as you learn words, it starts translating it into English for you, the player, to be able to understand. It might cause some confusion initially, as Urist turns into Dagger and maybe you don't really know him as Dagger, but Urist, in your own mind.