Spread round a square in town (7)
I believe the answer is:
margate
'town' is the definition.
'spread round a square' is the wordplay.
'spread' becomes 'marge' (marge is a kind of spread).
'round' indicates putting letters inside.
'square' becomes 'T' (a T-Square is a technical drawing instrument).
'a'+'t'='at'
'marge' placed around 'at' is 'MARGATE'.
'in' acts as a link.
(Other definitions for margate that I've seen before include "place in England" , "which people may visit for seaside holiday" , "coastal resort" , "Kentish Town?" , "resort town" .)