For "design purposes", they have never won a European trophy and they haven't won 30+ titles (Juventus have 2 stars to signify their 27 something titles, Inter Milan have 1 to signfy 18 etc.) They say it is a more continental design but it causes confusion causing people who have never heard of Man City (most people outside of stockport) will be under the impression they have won at least 3 European Cups when actually it's been 35 years since they won anything. In other words it's a complete farce.
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You will see the stars with the letter 'C' on the jersey and they indicate the player is one of the captains of the team.
The stars are for the years served as a captain for the respective team. With every year of captain service a white star is replaced with a gold star.