Personally I think they are and I wouldn't advise mimicking their strategy but unfortunately I do see a ton of these types of pages still rank well.
What does Google mean by "funnel?" My interpretation of that is redirects, overlays or the user must click on a link or button on the page they land on which directs them to another page.
Why does a page need to be "unique" to enhance their experience?
If someone lands on city page A for a service or product, why does it need to be unique from city page B?
It doesn't, at least from the stand point of the user looking for a local service or product. If you are making unique pages for each city, you are doing that solely for the search engines, not for the user.
The user is generally looking for a product / service in city A, they don't care about city B and they won't read or visit that page. And even if they did, the only thing you are going to do is re-write the content so it is unique. It is going to say the same thing as every other page only in a different way.
Creating unique content for each city for the user is a monumental waste of time.
"Now, Green Hills is a locale inside of Nashville. I think creating a page for serving Green Hills would technically be a Doorway Page. Because if you serve Nashville, you serve Green Hills. The page doesn't serve a function that they couldn't have gotten somewhere else from your website."
I think is could be argued either way as to whether it is a doorway page or not.
My personal opinion is that it is not.
The page doesn't serve a function that they couldn't have gotten somewhere else from your website.
That may be true. However, if they are not searching for Nashville and are using Green Hills to find the product or service; would they have even found the page that could have served them that information?
Maybe, maybe not.
"My guess is that they look for copied content and maybe even similar page styles, or maybe a combination of both."
I can tell you from my own experience that it is neither of those things.
As far as reporting them to Google. Why would you do that to a local business?
That is a crappy way to deal with a competitor. Unless they are truly doing something wrong and it's not your "OPINION" they are doing something wrong i.e. fake GMB listing.