I always had this weird idea that they were underground, I think it's because Sorpigal outright says you enter by cave, and I kind of went along with it with the rest.

Even then, I swear I recall reading somewhere that all the towns purposely are underground to protect from monsters. (Not that it helps as they spawn in there anyway)

But... towns like Dusk, Algary, Erliquin and Portsmith just say "entering town" especially notable with Algary as it has a port, which would be kind of hard for an underground city. But then again it's in the middle of a swamp so... why it's in Algary and not "Portsmith" (Which actually is beside the ocean) I really have no idea.

I really am not sure how to picture the towns, but it really does sound nice to imagine a bright blue sky above said towns, or sunset/starry night

All the town entrances with the exception of Algary mention a "passage" or a "cavernous passage".

Sorpigal - A cavernous passage leads to Sorpigal. Take it (Y/N)?
Portsmith - Passage to Portsmith. Take it (Y/N)?
Algary - Algary, enter (Y/N)?
Dusk - Passage to Dusk, enter (Y/N)?
Erliquin - Cavernous passage to Erliquin. Take it (Y/N)?

The following paragraph is quoted from the MM1 Cluebook under Towns:

"Once was a time that children frolicked through the Land of Varn. Happiness was known and felt by all. Though happiness still abounds, change has come. This change has driven the towns underground, thus explaining the cavernous openings found on your map."

When you look on the Varn world map that comes with the game you can see that each city is inside a mountain.

Ooh. Thanks :)

I thought I read something similar in the game manual. Or maybe from one of the statues in Sorpigal? I specifically remember reading about a time "before the towns moved underground".

Also, I always imagined Algary as simply being burrows under the swamp, is it really in a mountain?

A nice detail: one can pass directly from Dusk to the basement of Castle Dragadune, confirming that Dusk is underground.

I forgot about the blue dragon statue in Sorpigal now that you mention it. I had to verify the actual quote.

"In memory of a time long ago...Before the days when the towns moved underground, dragons were few and far between."

Oddly enough I couldn't find a reference in the manual itself to the towns being underground, just the caverns beneath them.

Even though Algary is shown as being inside a mountain on the Varn map, what you said about burrows seems to make more sense. With the other four cities you get the distinct impression when playing the game that you're entering and leaving through a mountain but with Algary it's just a rectangle of trees. If that is the case then maybe it was drawn that way simply for the sake of consistency.

I'm surprised I remembered that! That may be why I remembered the quote. There was nothing in the manual, so that statue was the first I heard that the towns were underground, and of course it made a lot of sense from then on as I explored. Maybe. Although it would also be hard to make burrows under a swamp without it flooding. So maybe they found some rocky ground to tunnel into. Interesting that the map shows them all as mountains though, I hadn't remembered that.

Also, someone mentioned the port... I imagined this as the tunnels of Erliquin emerging on the coastline, as a sort of cavern-port. Again, this doesn't make sense in a swamp, which is expected to be more or less at sea level at the coastline, rather than having a cliff or bluff that one could tunnel into. But maybe they found some rocky bits in the swamp to build the town in.

Or maybe it was just magic!

And yeah, I'm not sure why Portsmith doesn't have a port. Maybe it used to before it moved underground?

That could be why Algary doesn't have a dungeon system of its own. Too much work keeping it dry and free of vermin and disease. And what makes it problematic is the fact that, unlike the other towns, neither the grid map nor the ingame graphics indicate mountains anywhere near Algary, except for the Perilous Peaks which are further east. Actually, if you look at a map of Portsmith you can see a series of short parallel passages on the southern edge that look like they could have been docks or piers at one time. A wizard did it!