This is some information that was going to be revealed when Ferran, Marco and Giorgio arrived in Mirandola (by seeing the peasants and military going about their duties) but in the interest of integrating the party as fast as possible it was skipped over.
Mirandola is currently in the process of being converted from a relatively small castle into a fully enclosed walled city.
To understand the process, this first picture is what Mirandola will eventually look like upon completion. It will eventually become a Bastion Fort that fully surrounds the city by moat and stone walls. The Pico castle and keep is in the South East corner with it's own secondary moat and towers. Outside the city walls is farmland, with most commerce and industry of the dutchy taking place inside the walls.
This next picture is what Mirandola looked like partially completed in 1550. Notice how the fortifications were completed in incremental stages, with walls and moat being added in chucks instead of trying to wall off the entire city in a single project. There are five smaller forts surrounding the city that will eventually be connected to become points in the Bastion Fort. At this stage, the walls only fully enclose Pico castle, the city Plaza and other important buildings, with the moat still being connected to a river.
We also know that Mirandola was sieged in 1510, so at that time at least the Pico castle and Plaza were walled. (Sieged by Venice, funnily enough. Mirandola fell when the moat froze over and Giovanni Francesco Pico later paid 20,000 ducat to Pope Julius II to have the Lordship returned to the Pico family. It's ridiculous how fickle these alliances are.) Anyway, the game is in 1527 and these kinds of earthworks take decades of on-and-off construction so in game there is currently a large amount of work being done to close off the next section of the walls and moat in case of imminent siege.
