The idea is that any group can experiment in making policies, beginning small-scale, to experimentally see how well it goes. If it fails, it fails small - and hints what doesn't work. And if it succeeds, it can be emulated and/or expanded.
Similar to economic free zones, in that you have a small area with different laws from the rest of society, but these cities have an enormously bigger variety of policies that can be tested.
Some variants are charter cities, startup cities, free private cities.