We're not talking about the concept of national sovereignty here, we're talking about a concept derived from self-governed British colonies, which generally ran themselves unless the crown needed to step in for some reason.
This is the concept at play at the municipality level that is being discussed. The cities run themselves unless the state has to step in for some reason. Just as the states run themselves unless the federal government needs to step in for some reason.
This is as opposed to say, a village, which in New England at least is defined as a population center which is not self-governed, but under the direct control of a larger municipality within which it lies.
But British cities, towns, villages, hamlets, and farms also generally ran themselves unless the crown needed to step in for some reason. They still do, and this is also true of everywhere else in every other legal regime. The colonies only differ in that they're so far away that the crown generally can't step in even when it wants to.
Jews in medieval Europe were generally subject to Jewish law and not subject to the law that applied to the rest of the city. That's self-rule.
