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in kh2 were you fight sephiroth, at that place at the cliff you can see malificents castle but there was also a ruined city there. did people used to live there.
Well it was said in the game that it use to be a large beautiful city. So maybe it was just another part of the city. I am sure we will see it in it's glory in BBS.
Like people above have said, it does look like a city was there, but was brought to ruins by darkness and by the way all those Heartless and Maleficent was there, Leon and the others couldn't get to rebuilding it.