Castles have much better public order than cities, so they are quite useful to have in very far-flung, relatively poor provinces such as Jedda or Tripoli to avoid having to maintain a huge garrison to keep order (a castle will almost never rebel even if it has a garrison of only 10 peasant archers say). So they are useful for securing control of newly conquered lands, as you suggest they should be.

I think most people find they end up with many more cities than castles as their empire expands. I usually aim to have roughly one castle per "region", i.e. one in Spain, one in France, one in Britain etc, with the rest cities. It's quite useful to have castles on your borders however as although it is easy enough to defend a city, defending a citadel is even easier; also, I think the AI may be more averse to besieging castles than cities, so it should help to deter them from invading.