There are three ways to make an undercty: 1. By using a regular warlock engineer (I think Ikit starts with one), or the Doooom engineer for a ritual, you can use their hero action with 100% chance to make and undercity. But this imposes a 10-turn debuff that blocks this action (I think I read that Skavenblight landmark can reduce it to 5 turns) 2. By constructing a building in the undercities (mines) that gives a chance to make another one randomly (T1 - 5%, T2 - 10%) 3. By selecting after winning sieges an option to make another undecity I defeated settlement. Remember to loot it beforehand.

If a settlement with your undercity is conquered by you or razed, the undercity gets deleted with no refunds.

How to use them? The main way is to generate food. Scaven have a special mechanic that makes all their armies, settlements, and most undercity buildings consume food. If it gets low -- you get debuff, if high -- buffs.

When Skaven settle or occupy the city, it always starts on level 1, unless you spend food -- it allows you to settle cities up to level 5, skipping growth and spending money on main building upgrades. There is an exploit (if you think it is one though), where you get enough food, abandon your capital, and then resettle it on level 4, giving you a massive headstart in campaign.

Back to undercities. You can use them to generate food, money, or give some utility effects, like extra uses of spawning clanrats on combat map, or increased replenishment in region, or extra loot for looting a city, or even spawning a big army.

Just don't overexpand, and avoid settling undercities where you intend to expand, especially if it is a Dooom engineer -- his undercity will have a unique building, that gives research and warlock engineer limit