Crossword Genius

City set down nestles within volcanic hill (7)

Ross

I believe the answer is:

cologne

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'city' is the definition.
(Cologne is an example)

I don't understand the rest of the clue.

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(Other definitions for cologne that I've seen before include "Town" , "smells nice" , "Foreign city" , "German river port" , "European city" .)

I've seen this clue in The Times.
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