You choose the categories you wish to have for your ClassiPress installation, however there isn't currently a built in option which separates these into cities (unless that's how you manually set up the categories themselves)..
In this case, your best option is probably to set up a network so each city has it's own instance.. You can read more about how this is done on the
WordPress Codex site. Other customers have taken this route, and of course it requires some level of customization, but it can be done.
