The best way to describe it is pressing the accelerator with City on makes it accelerate slower than with it off. When you turn it off you seem to get some sort of power boost or bhp - I don't know how to describe it! Seems to fit with what Catseyes is saying.
Plus, when my battery was duff and I replaced it, my fuel comsumption rose a fair bit suggesting that because the alternator was working hard charging it up it was using petrol somehow.
When I finally get my Punto back though I will be keeping City off!