Next to the development of agriculture, urbanization was the most significant development in human history. There is no single explanation for why towns and, later, cities developed, but there are clear reasons why they may have done so and why agriculture and specialization of labor would be necessary. Urbanization requires specialization of labor, and, hence, agricultural surpluses, both to provide the builders of the town as well as the leadership necessary for organizing a town and the warriors for defense. But even more clear than this, urbanization and specialization of labor co-evolved since further specialization can occur in a town due to the higher density of population and further specialization produces further economic opportunities for migrants to the urban center. Why might a town develop in the first place? Probably there are many reasons and combinations of reason for each urban center in history. Contributing factors might be the collection, storage and defense of surplus food, as meeting places for traders who can exchange surplus food and crafts items, and the defense of water supplies that will be so necessary for agriculture in dry areas such as Mesopotamia. Easier defense and better organization seem, to me, to be the most obvious benefits of urbanization. Once established, an urban center tends to grow since it becomes a focus of migration for a growing agricultural population.
The earliest known urban center, without a doubt, is Jericho in the Levant (Israel/Palestine—another extension of the Fertile Crescent). Jericho had about 2000 people around 8000-7500 B.C. and a population of 7000 by about 7000 B.C. By then it had a stone wall and tower for defense of its water supply, the first known example of fortification.
The second earliest urban center known is Catal Huyuk in Anatolia (modern Turkey—-yet another extension of the Fertile Crescent). This center dates from about 6250 B.C. after Jericho had already declined.
Why was urbanization, one of the most definitive aspects of "civilization" delayed in China until the Bronze Age, Shang culture when agriculture and pottery did not lag so far behind the Fertile Crescent? There is no clear explanation for this, but two possibilities exist. First of all, the Fertile Crescent crop and animal domesticates (wheat, barley, lentils, goats, sheep, etc.) provide a better diet than the native Chinese domesticates (millet, rice and pigs initially, between the independent centers of North and South China, and later soybeans). The Fertile Crescent crops also can thrive in a wider variety of environments (barley and wheat do best in somewhat different environments, as do goats and sheep). Also, the development of wool-bearing sheep around 4000 BC in the Fertile Crescent gave urban development a further boost by giving it earth's first industry. This industry was often state run and many of the earliest written records refer to the wool and textile industries. So the Fertile Crescent agriculture and husbandry may have allowed a faster build up of population than the earliest Chinese crops and animal domsticates. However, I am not sure I am convinced by this. The delay seems too long. Another possibility is that land and water were more available in the Yellow River and Yangtze regions of China and the broad plains between than in the semi-desert and dry mountains of the Fertile Crescent. This would have the consequence that competition would initially be less and so defense less of an issue in China. This would remove a major impetus for urbanization until a later date when the population got high enough for defense to be important.