Third Level Domain Name Help

I am trying to find a web host for a small town in Colorado. We want the 
name to be in the 3rd level domain format, i.e.:

www.town.townname.co.us or www.ci.townname.co.us

I have the following questions:

This is a 3rd level domain where the subdomain of "town" or "ci" is created 
by the host, correct?

I tried to register this name through Neustar (.us registrar) and was told 
I had to become a "delegated manager" for this domain. I filled out the 
appropriate forms and listed our current name servers (we currently are 
hosted under a generic name), but was informed by Neustar that the name 
servers were not "authoritative for your domain name" and "You may want to 
find a hosting company that knows how to create "A" records for your domain 
name." What does this mean?

Appearently, our hosting company cannot accomplish this. Any suggestions 
with a hosting company that can?


TIA,

Ted L

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