A citadel is the engine room or ammo under turrets. Generally speaking most ships engine rooms are under the smoke stacks, and ammo under turrets. Aim at the waterline.
When your AP rounds enter the citadel, and do not over penetrate the armor on the other side, you get 100% AP damage, aka a citadel.
There are 3 times you get citadels:
1: enemy cruiser or battleship shows you a 90 degree angle on his side (broadside), you hit his engine room.
2: enemy cruiser or battleship has their bow / stern angled towards you, however your shell penetrates the bow armor, hits the gun #1's ammo, and you get a citadel.
3: you are at a great range, your shell hits the deck armor and goes down into the citadel.
If a ship is moving towards you, to hit the water line you have to aim slightly below it, so he moves into it.
Like wise if he's moving away, aim around the deck, or slightly above to have rounds land on him.
Here is a video I made, although it was made about 6 months ago, so obviously its a different version of the game, principles still apply.
Also, my credentials are 9700 games played, about 1/3 in battleships, 65% win rate.