1. An idealized town, hamlet or village built solely for propaganda purposes -- usually by a totalitarian or autocratic government.
The most famous example is Kijŏng-dong ("Peace Village"), a mostly uninhabited village located in North Korea just beyond the demilitarized zone. It was built in the 1950s to encourage South Koreans to defect to North Korea. (Fat chance.) Officially, Kijŏng-dong is a 200-family collective farming town with all the amenities. In reality, it is used to house DPRK soldiers who patrol the DMZ. The world's tallest flagpole stands nearby.
2. A Propaganda Village is a real-life version of a "Potemkin Village." According to myth, Russian ministry Grigory Potyomkin tried to impress Empress Catherine II in 1787 during her visit to Crimea by building fake peasant buildings (facades only) along her travel route. Historians now believe this was a rumor drummed up by Potyomkin's enemies. What he really did was get local peasants to spruce up their homes in advance of the monarch's visit.
Let's go up to the DMZ to see that Propaganda Village -- my cousin in Chicago wants some photos!