Normally I'd let Giaus answer for himself but I he's in the middle of a move so I thought I'd give it a try.

First off you have to keep this in context. RTR is striving to improve the realism in RTW, this does not mean that it will be a complete simulation of reality. Any element of the game taken in isolation without reference to it's level of abstraction will appear ludicrious.

For instance the "buildings" of total war do not of course represent single buildings anymore then the city in a province represents a single settlement. They represent a commitment to a specific aspect of a society ( temples for example) or a commitment to an infrastructure (blacksmiths - metal working, weapons creation, etc.). They are an abstraction.

By adding a lumber industry requirment (and the need for forests to support it) the realism mod has added more realism to the building of naval power. It this all of a sudden vastly more realistic then the existing system? No, but it is a modest step forward.

The Stone quarry labor system similarly deals with stone working. Quarrying stone and moving it is very labor intensive. Having to transport such heavy loads requires more labor. Again, a modest advance in realism.

As to why the "cost" of labor is pop. This is the fundamental underlying economic model of RTW. What this reflects is the fact that labor spent on shifting stone for large public projects is not labor spent on private projects that would increase quality of life and improve birth rate.

More importantly the out come is that some areas will naturally have less populated cities then others due to natural constraints.