Let's break it down into parts and explain it in sections.
"Manufacturing and trade" - this can be thought of as building, making and selling things.
" soon gave rise to towns" - there was work in 'manufacturing' so people moved there for jobs and the small village grew. Think of the towns that develop around oil and gold.
'Which' - in this context you can read it as 'that', it's being used to show that the rest of the sentence is a characteristic of the towns. I'll give you some examples of 'which' at the end.
"enjoyed an importance all out of proportion to their numbers" - most towns are important because they have a lot of people living in them. These towns have a small number of proper living in then but are extremely important. The reason they are so important is because they provide a very expensive product, e.g. gold, oil, even water in some places.
I hope that helps.
Similar examples of 'which':
* The cat gave birth to a kitten which was loved by everyone.
* I peeled and ate an orange which wasn't mine.
* The shop offered a discount which led to increased sales.