Q:

Does the automated trading work correctly?

NOTE: This pertains to the Civ4: Colonization expansion specifically.
A real game killer I've found with this game, is that it appears to not effectively allocate resources during the automated trading. 
eg.

I'll typically have one city that is producing tools, with an Iron
  works, and a couple of blacksmiths. 
On this city, I'll tick the 'export' box for tools. 
All other cities need to import tools, so they can finish their
  printing presses etc.  On these, I'll tick 'import' for tools. 
I create a few wagons, and off we go.

What I find, is that the tools simply won't make it to the other cities. 
They might all pile up in one city, for example.

A:

The way the game handles trade routes is a bit silly.  Essentially, having one city export a good to multiple import cities is fundamentally broken in the game.  
If you mark a city as exporting a good, you can set a minimum threshold to keep in the city.  You can then mark a city to import that good.  
Once you've done both of these, you assign a wagon train to handle the route.  The wagon train will:

Go to the export city
Load up on goods until it is full, the city is empty, or the export threshold is hit
Go to the import city
Dump all of the goods marked for inputs out of the wagon train

If you try to export from one city to two importers using 2 wagon trains, generally what will happen is that the first wagon train will arrive, take all of the good to export, go to the import city and dump it.  There's not even a check to see if it would overfill the warehouse - the wagon train just doesn't care.
Then the second wagon train arrives at the export city, sees there is none to be exported, and just sit around and wait, perhaps getting a few of the good as it is produced, assuming the first wagon train doesn't show up and steal it again.
The net result is that you have a pile of something in your first city, where you'd want that evenly distributed between the two.
One way to work around this is by having two legs to the trade route.
Say City A produces a good, and you need it in City B and City C.

Have City A export the good
Have City B import it and export it with a minimum threshold being how much of that good you want City B to keep.
Have City C import the good

You can assign one wagon train to run both the A->B and the B->C routes, or you can assign 2 wagon trains.  The advantage to having 2 is that if City B rarely gets above the export threshold, City A might stockpile goods while the wagon train is waiting at B to run the B->C leg.
Overall, though, I suggest that if you need anything more complex than "move all of this over there" that you run the trade routes manually.

