That's right. Roughly, a municipality is to a state as a state is to the USA. This is overly simplistic, but it works for the moment. A municipality can pass laws, collect taxes, maintain publicly-funded police and fire departments, and perform other such governmental functions.
And Baltimore County has none of them. Towson is the county seat, but it's not an incorporated town -- it has no elected officials and no local government. County police provide law enforcement, and the fire department is a volunteer unit. Public lands and roads are maintained by the county government. The same goes for all the towns in the county.
Growing up in Lutherville, I did find it a bit odd that the only police cars I ever saw were Baltimore County cops and Maryland state troopers. I didn't know at the time that there was a reason for it.