From my vague recollections of the Aspirin's afterward in the first Thieve's World novel, I think that could be a great way to go. As far as I've seen, Sanctuary is a superior example of shared world building as is being discussed...
First, figure out what sort of city is it. A port, an inland trade hub, a military support center, etc.
Next, get a vague notion of why anything would be here- relation to the outside world in politics and trade. Is it a relay point for overseas to inland trade? Is it at the tail end of a powerful empire? The capital of a glorious nation?
These things pinned down, the local geography can be decided. Are there mountains for the city's famous mines? A seacost to be interrupted by its harbor? Green hills or flat farmland?
At this point, a rough map should be drawn, so all can visualize the rough shape the city is taking. A few key locations should be marked down as points of reference- maybe something as simple as 'where we were dumped off' and 'the first campfire'...
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And here's my own question... what sort of culture is this? Generic Fantasy Western City cities are getting a little cliche.