The so called "dungeon" is a labyrinth that has many portions. From the city of Aine Gazal to Lemurian ruins. From the extensive Labyrinthian, to the various crypts, sewers, and independent complexes. This also includes the Undercity and it's environs, which can be considered its own district. So, all of these were built with their own reason for existence. They have their own stories to tell to justify their existence.
So, what is the one reason that they are all down there? The reason is that Phaeselis was built upon older cities and beside older cities. Tel Dan contains Labyrinthian, Tel Pheonix contains Aine Gazal, and the caves under the waterfall contains the Lemurian complex. Beneath the lower part of the city is ancient Dwarven ruins, the Undercity, and the new settlement of dwarves, and caverns extending into Drow lands.
Behind the Curtain: DungeonsEdit
A labyrinthian dungeon isn't exactly found all over the world. The Hellenes would put their prisoners in a hole in the ground, or in a prison beneath the palace. There are no vast underground complexes filled with monsters and treasures that are common all over the world. Phaeselis' "dungeon" is one of a few unique places on the Planet!