Colloquially, it just means a small municipality. A “rural town” is a small municipality that is not near a larger metro area.

Town has a specific meaning in some states. I’m from Ohio. There is no such legal meaning here. Any municipality over 5k residents is a city. Anything other than that is a village. I am from a city with a population of about 6k. Outside of the city limits is farmland. I would say I’m from a small town/rural area.