Sorry if its an obvious question, but if a city said Spellcasting 7th, does that mean there are people who can cast 7th-level spells or is it that the highest level npc would have a caster level of 7th?
It is the highest level of spell that is available for purchase at that settlement. It is left up to you to interpret what classes/NPCs actually can facilitate this, but by knowing the highest level available, you can effectively gauge the power in that particular site.
From the PRD:
Spellcasting: Unlike magic items, spellcasting for hire is listed separately from the town's base value, since spellcasting is limited by the level of the available spellcasters in town. This line lists the highest-level spell available for purchase from spellcasters in town. A town's base spellcasting level depends on its type.
Sorry if its an obvious question, but if a city said Spellcasting 7th, does that mean there are people who can cast 7th-level spells or is it that the highest level npc would have a caster level of 7th?
Spellcasting and Services: "In addition, not every town or village has a spellcaster of sufficient level to cast any spell. In general, you must travel to a small town (or larger settlement) to be reasonably assured of finding a spellcaster capable of casting 1st-level spells, a large town for 2nd-level spells, a small city for 3rd- or 4th-level spells, a large city for 5th- or 6th-level spells, and a metropolis for 7th- or 8th-level spells. Even a metropolis isn't guaranteed to have a local spellcaster able to cast 9th-level spells."