Colonization has many similarities to Sid Meier's previous title, Civilization. Both games pit the player as a godlike leader of an embattled civilization, the objective being to gain supremacy over rival civilizations, primarily through military means and discovery, transformation and utilization of the land. In Civilization the player begins the game in 4000BC, with a "primitive" tribe which gradually builds up a sophisticated conglomeration of cities... infrastructure, units, resources, etc.

The Colonization experience begins in 1492. The player is asked to select one of the four world powers (England, France, Netherlands, Spain). The journey begins with two units, travelling on a ship to the new world, and as the ship moves into the unknown, the map is revealed. Subsequently, the new world is discovered, the Indians are met, a colony is built, colonists begin to change the land to be more productive, the ship is sent back to Europe to collect more colonists, selling any superfluous items, and the exploration of the world begins. The game revolves around, harvesting, manufacturing and trading goods. Resources gleaned from the land are converted into commodities and either used, or, sold (most of the time back in Europe). The prices of commodities fluctuate depending upon supply and demand. The more of a commodity you and the other three colonial powers sell, the less the markets will be willing to pay for them. With money a player is able to buy goods, recruit new colonists, ships or artillery. Whilst maintaining an income, the player is also required to protect his colonies from potential invasion, through employing soldiers. Moreover the player is required to manage his citizens effectively, educating the populace in various skills which increase their productivity in those areas (farming, mining, lumberjacking, fishing, blacksmithing, carpentry, etc.) that are required. There are three areas of employment in the Colonization world, primary resource gatherers, secondary resource manufacturers, and the more specialised units such as soldiers, statesmen, pioneers, Jesuit missionaries and preachers. Each level of specialisation requires prerequisites, both to be taught and to make effective use of. The geography of the land determines the productivity of a colony, for instance some squares produce a lot of food, whilst others produce none. Thus it becomes necessary to link the various colonies together, transporting goods from places in which there is an excess to places in which there is a demand. Normally roads are built for this, as they grant increased movement.

Specialist buildings and special squares, as in Civilization, have greater output. Specialists, who produce more per turn, can be trained or recruited. Indentured servants and criminals are as good as ordinary colonists in primary production but not so good at manufacturing or statesmanship; but they can be transformed into improved types by education. Missions established in Indian villages eventually encourage converts to join a colony; they are better than ordinary colonists at most outdoor pursuits, but not industrial ones.

Horses can be bought and sold, but they also multiply in any colony that has two or more of them and a food surplus. They help any colonist move further in a turn, add to military strength, and allow Scouts to do profitable things in native settlements or foreign colonies.

Ships of several types (Caravel, Merchantman, Galleon, Privateer, Frigate and Man-O-War; which can be purchased or eventually built) move goods, horses, and colonists around and some of them can attack, while wagon trains (which can be built) move goods and horses on land.

Relationships must be carefully maintained with Indians and other colonial powers, including waging war if necessary, having strong defensive units and fortifications, or recruiting the peacemakers Benjamin Franklin and Pocahontas. Destroying native settlements yields a quick profit and makes their land available but prevents the substantial long-term gains to be made by friendly bargaining and trading. It also counts against your final score.

The king of your home country meddles in your affairs from time to time, mostly by raising the tax rate but occasionally by forcing you into wars with your rivals.

Moreover, the player must pay attention to political development and recruiting Founding Fathers (roughly corresponding to the Civilization Advances of Civilization), to ensure the best possible chance of success.

On the easiest level, the action takes place, essentially, at the speed in which you want it to. You are left to your own devices, learning the mechanics of the game. With each increase in difficulty level, the restrictions that bound successful endeavours become more pronounced. The game is eventually won by seceding from the motherland, signing a declaration of independence and defeating the armies which are sent to usurp your "unalienable rights". Successful navigation through this game requires the player to think, to strategise, to effectively make use of what is provided, to map, and cultivate the land, to negotiate between rival factions, and occasionally to conduct military campaigns. Whilst the military aspect is important, it is less so, than in the Civilization series, focusing more heavily on aspects of trade, and the inter-relationships between peoples, and colonies, which make up a community. In doing all these things the player is required to develop certain fundamental notions which influence both the game world and the real world, such as: infrastructure restrictions and requirements, methods for increasing productivity, the importance of economic and civic growth, the centrality of trade, that some resources are more useful and more valuable than others, the importance of education, that newspapers and diplomats influence public opinion, that religion can affect people's allegiances, even that it's more sensible to use those member of your population who aren't proficient in a trade or profession, as soldiers, the influence of historical figures on colonial New World societies, and the list goes on.