You've misheard, but it's an easy mistake to make. What the person suggested was:
The most populous cities
Populace and populous are homophones—Oxford Dictionaries lists both as /'pɒpjʊləs/. Here are the definitions of the two words (from Oxford Dictionaries):
[treated as singular or plural] The people living in a particular country
"the party misjudged the mood of the populace"
Having a large population; densely populated.
"the populous city of Shanghai"
As for why populous must be used instead of populated, it depends on the meaning you're trying to put across. If you wanted it to mean "cities with the most people," you'd be fine (in my opinion) using populated. If you wanted it to mean "cities with the highest population density," I think you'd have to use populous instead.