Unfortunately, when the town is full you can't build any more buildings.
When you build buildings, the game automatically adds roads to connect it. If you build randomly, the roads may take up a lot of space in the town. Once these roads are created, they can't be removed. If you read the posts in this forum regarding "Turkish building techniques," you will see that people go to great lengths to minimize the formation of roads so that they can squeeze in as many buildings as possible.
Once the area inside the third wall is filled, you cannot build any more in that town.