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The Palace marks the capital city and center of your empire. It eliminates corruption/waste in the capital, and decreases it in nearby cities. Each civilization can have only one palace at a time. But each civilization can also build the Forbidden Palace.
A certain points throughout the game, you are given the opportunity to upgrade the palace. There are five different architectural styles to choose from.
When populations began to organize their communities into cities, their governments became more structured and formalized. At an early stage, the ruler of the city established headquarters from which the business of running the city was conducted. In many cases, these buildings also served as the living quarters of the ruler. In wealthy cities, these facilities often expanded into immense, sprawling palaces. These richly adorned, imposing buildings were a source of civic pride, and helped to reinforce the aura of power surrounding the ruler.