Your outpost can be upgraded to city when you have enough influence.

Click on an outpost and convert it to a city, just like you did with the first one. The first city was free but from now on it costs influence. Keep in mind that you can only create a city in an outpost that is not attached to another city, if that's the case, you have to release it first.

You also have a city cap that you can see top right corner, you start the game with a cap of 2, going above you give you influence penalty per turn (the first one isnt a big deal then it goes bigger and bigger)

The cap can increase with some techs, civics and legacy traits(Persians)

Thank you.