I came up with this theory a while back, and after seeing Blackreach well...
Vvardenfell was supposed to be the capital city of the dwemer, it even means 'City of the Shield' but it appeared to be nothing more than just an island with a few small ruins dotted here and there.
But digging deeper, it seems that many of those ruins have closed off or caved in areas that we can't reach.
Now compare this to Blackreach, it's a huge underground city that is connected to most of the other ruins in Skyrim.
Could it be possible than way underneath Vvardenfell there's the actual city of... well Vvardenfell, and the other ruins are just surface access points to it?
With the prevalence for magma in Dwemer ruins and with Vvardenfell being a volcanic island, I'd say it's unlikely. From what we saw in Morrowind, I'd speculate that Vvardenfell must have a huge magma chamber under it, and numerous areas where magma is close to the surface. Unless the dwemer are masters of
bauxite, I doubt they'd have very much constructed beyond the "magma table" in any particular area.
Now, they might have something like that close to the surface of Red Mountain's cone, but it wouldn't be the kind of massive, open-spaced structure that Blackreach is. More like tunnels circling the lava chamber within the stratovolcano.