The City is actually a structure that began on Earth. The mechanical beings known as Builders, which move around reforming and creating new landscapes, appear to have begun building without end, creating an enormous structure with little internal logic or coherence.
The City, and the Builders, were controlled by the Netsphere and the Authority but they have since lost the power to control the expansion of The City due to the chaotic and insecure manner of its growth. Without intervention by a user with Net Terminal Genes, they cannot reestablish control over The City nor the Safeguards, whose original job was to eliminate any humans who try to access the Netsphere without Net Terminal Genes. The Safeguard now attempts to destroy all humans without the Net Terminal Gene as the degradation of The City has corrupted their true goals.
It has been suggested by Tsutomu Nihei himself in his artbook Blame! And So On that The City is actually a growing Dyson sphere of gargantuan proportions. Its spherical circumference is speculated to be roughly the size of Jupiter's planetary orbit (32.675 AU). No evidence contradicts this speculation, and the prequel to Blame!, NOiSE, even states that the structure has passed the orbit of the moon. In the last chapter of NOiSE, it is stated "At one point even the moon which used to be in the sky above, was integrated into The City's structure". In Volume 9 of Blame!, a room is even revealed to have a diameter roughly the size of Jupiter itself, reinforcing the speculation on the sheer size of the Megastructure.