The 3 options really have a pretty easy application when you consider the results you'll get.

Occupy settlement. As mentioned previously good in the early stages of the game, you simply move in retain the current population & don't damage any buildings. This is really applicable to cities that you take where your faction & the "populace" are compatible, for example a catholic faction taking a muslim city would not be compatible so to avoid unrest you would need a large garrison, & it would take longer to convert the city itself.

Sack Settlement. You need cash, sack the settlement, you get alot of money but do not drastically decrease the populace so it will recover faster. The building damage may or may not be a concern dependent once again on the peoples that you are taking over, obviously a city with the wrong religion will require you to knock down their places of worship & build your own anyway but you have no guarntee that the sacking will damage those or other buildings. In a small city the population loss maybe sufficient for you to quickly convert & gain control over the populace, in a larger city it may not be sufficient for you to comfortably convert everyone, before the unrest gets unreasonable. This option is also very useful if you're not looking to consolidate but just raid or put an enemy on the back foot, you make a mint of money & lose them the cities wealth for a while.

Exterminate populous. You move into a hugh city of an opposite religion, or a city revolts due to unrest, move in & kill 'em all. You'll get less money for doing this but you'll make extra cash knocking down the religious buildings which you may want to get rid of anyway, & in the case of unrest, well you just killed everyone so that & squalor should be radically decreased.