No, it was related to secessions, not CTOs. The idea was that eventually secession would be enabled for duchies that had no city/stronghold, but at least one townsland. In that case, the townsland could become the capital of the new realm. I am not sure if it was ever discussed that a capital could be moved to a townsland. Perhaps if the realm had no more city/stronghold regions.
Seemed fair to me to conclude that if a townsland could be made a capital by secession, then it should be possible to make it one when you lose all of your cities.
