A few days ago I was watching a video of Oblivion and the player mentioned that unlike the Dwemer ruins the Ayleid ruins don't look like they were designed like actual cities. That they didn't look like they were designed for people to live in. And that got me to thinking, does it actually say anywhere that the specific ruins we find were cities? I would assume that the ayleids had cities of some type, but does it say anywhere that any of the specific ruins you find, Vilverin for example, were cities?

Because the guy in the video was right. They don't look like cities. I don't know what they were used for. Actually that is one of the things I like about them, that they defy understanding. Because if you understand something, even if that something is dangerous, it is inherently less frightening than that which one cannot understand. Because if you understand something you can prepare to deal with it. But if you can't understand something you don't know what to do.

I don't know their purpose, but whatever it was must have been important since they obviously went to great effort to build so many of the things. They make me feel small, like they made by beings far greater than I, far greater than I can fully comprehend. There is something very menacing about that.

At least some of them definitely were. The blurb for the Mehrunes' Razor plugin says "The lost Ayleid City Varsa Baalim has been unearthed by a rogue Telvanni arch-mage, in pursuit of a fearsome Daedric Artifact..." Also, the Imperial City was built over the centre of the most powerful of the Ayleid city-states, so the ruins attached to the city sewers could also be considered part of a city. There may be others that are cities, mentioned in dialogue as such, and perhaps also some of their names translate to something including "city".

I agree it seems kind of contrived that the sprawling, dangerous underground sections of the ruins were at one point inhabited. Especially by a race that venerated star deities. To explain it, I'd just assume that the above-ground ruins were once more extensive and inhabitable than they are now, and some ruins over time due to natural events like landslides, floods and so on have ended up below ground.

Well I think most of the underground areas are just the tombs while the actual cities were destroyed or used as building materials.

Much as is the case IRL, I'm of the assumption that the structures that people actually lived in have long been since stripped down and repurposed, and the only portions that remain harness dangerous magical energies within and the roaming undead. Hence why no one but archaeologists, loony adventurers, and desperate bandits delve into them.

That said, some may have deigned to rule within them. Umaril and that one guy from the Alyeid crown crest made their home down there, IIRC.