Type 1 and 2 governments give you access to your faction's best unit types and structures, meaning that you can develop those settlements to a higher degree under those government types. That's why it's recommended that type 3 and 4 govs are used in settlements that are already quite developed, where you simply want to restore some peace and stability as quickly as possible.

I think generally speaking, it's a good strategy to employ the highest level of government a settlement will permit. In regards to type 1 or 2, you should consider how that settlement will be used and who among your FMs, if anyone, will govern it.

Type 4 govs are good for establishing law & order quickly in a conquered territory that already has a decent level of development. You can also usually recruit higher quality native forces under this gov with the proper MIC. I believe a type 3 would allow you to develop deeper into the building tree over a type 4 and give you a good balance between your faction's native recruits and the 'foreign' ones indigenous to that region.

Also, if I'm not mistaken, type 4 (and 3) govs have higher corruption rates as well (ie, sticky fingers with your money).

If you switch over from a type 4 to any other government type, remove your client ruler from the settlement that turn, otherwise they'll get the "imposter" trait and cause unrest. A Provisional Military Occupational gov is considered a faction-type gov, so your client ruler should be out of there before you end your turn when you begin the switch. You can use your client ruler in the field as a general if he's not a total waste of space and use him in your next conquered territory that you employ a type 4 gov in.