Although it's not considered a "city", I think Zora's Domain from both OoT and TP were my favorite. It's really fun to dive off the waterfall and swim in a huge lake
My favorite town in the Zelda series is Windfall Island, from The Wind Waker. It's just a really awesome place, with great background music and a lot of quirky and fun characters, as well as an abundance of things to do there.
My favorite is Outset Island in the Wind Waker. It has great music, a ton of pigs, a grandma that makes you this full health replenishing soup and an outlook area where you sleep.
My favorite village or town or whatever in a game is usually a snow-themed place. I can't exactly say what my favorite is, but I think I should go with the Goron Village in Snowhead from Majora's Mask. There's nothing special about it, I just like all the way it transitions from a cold, dark, hopeless winter to a warm, sunny spring.
I'd have to say that Skyloft in SS is pretty high up on my list of favourite towns. I really liked the marketplace; it was unique and had a "bartering place" feel to it. Very diverse as well.
My absolute #1 pick though would have to be Zora's Domain from OoT. I loved seeing the zoras pop out of the water whenever you swam near them, and the waterfall diving game won me over from the beginning. Of course, no one can forget the music in that place as well. Just gorgeous overall.
My favorite town/village from the Zelda franchise is unarguably Kakariko Village. No village has such amazing sights or sounds.
The architecture is very well designed from the watch tower with the incredibly long ladder to the windmill which houses Guru Guru and the Song of Storms to the House of Skulltula.
Another aspect of Kakariko that appeals to me is just how much it changes in seven years. It goes from a peace loving place with carpenters strolling around and a girl with a chickenpox addiction collecting breeding cuccos to a place of death, despair, and devastation with literally no life anywhere. The moment of eeriness is perfectly captured when Bongo Bongo attacks after Link's meeting in the village with Sheik.