Final answer:
The Free Indian Town system was a part of Spanish and Portuguese colonial policy adjustments in the 16th century dealing with indigenous populations and labor needs. It followed the conquests of Aztec and Inca empires and was influenced by the need for a more humane and sustainable approach to colonial governance of the native populations.
Step-by-step explanation:
In 1516, the significance of the Free Indian Town system can be contextualized within the larger framework of Spanish and Portuguese colonial rule. In the aftermath of the conquests of the Aztec and Inca empires, these colonial powers faced the substantial challenge of governing distant territories and the indigenous populations therein. A colonial bureaucracy and institutions of rule were established to manage these territories. Labor was a critical need, and various policies centered around the utilization and treatment of indigenous peoples. As the century wore on, the Iberian kingdoms were compelled to modify the exploitative Encomienda System, responding to the advocacy of reformers committed to rectifying the abuses suffered by indigenous peoples. The contact between Europeans and Native Americans significantly shaped the development of American colonies, with indigenous peoples playing a vital role in the evolution of these nascent societies.