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Ok, this is probably a stupid topic since I haven't even finished the game yet. I'm currently in Nova Prospekt where you have to put the turrets up to guard the control room.
Anyway, so far this is what I think the story is.
Basically the citizens are hearded up like cattle and kept contained in various cities 1- 17. Then every so often they are sent away on those big black trains to Nova Prospekt. Similar to the way concentration camps worked. At Nova Prospekt they are stored in those pods and gradually augmented with machinery to create combine troops to serve Dr. Breen. So the citizens are harvested to become elite troops under Breen's command. Thats what I've got so far.