Hittites special building, the Awari states: Automatically upgrades regular outposts. Upgrades them to what? I am confused what that means, an outpost can only be upgraded to a city (as far as I can tell). How do you build this structure or what does it do?

Hittites don't build outpost as those are replaced by Awari, which is pretty much the regular outpost with the special ability of acting as a spawn point for neighbouring cities.