| Incabulos |
Take a look at real life prisons for starters. I'd start with Eastern State Penitentary in Pennsylvania and look at how much of a horror show it was. Since that particular place is closed (except for tours) you should be able to get your hands on actual blueprints or at least detailed maps.
As for creating the city, start with why the prison is there in the first place and work outward. Most likely any city/town houses the families of the warden and security staff, they in turn require certain basics like a market, some manner of transportation hub, etc. How much control does the warden exert over the actaul town and it's politics? Maybe the entire population consists of criminals and only after a set period of incarceration are they allowed into a "town" job. If so, then what means of control are in play to safeguard their behavior?
I have more I could add here but I am curious what everyone else has to say...