Capital that man links, strangely, with capital in Iceland (8)
I believe the answer is:
helsinki
'capital' is the definition.
(capital of Finland)
'man links strangely with capital in iceland' is the wordplay.
'man' becomes 'he' (he refers to a man).
'strangely with' indicates anagramming the letters.
'capital in' indicates taking the first letters.
The first letter of 'iceland' is 'i'.
'links' with its letters mixed up with 'i' makes 'lsinki'.
'he'+'lsinki'='HELSINKI'
'that' acts as a link.
(Other definitions for helsinki that I've seen before include "Foreign city" , "foreign capital" , "Liken his strange city to one in Finland" , "Sikh line (anag)" , "port" .)