Strange bats around fairy in city (7)
I believe the answer is:
belfast
'city' is the definition.
(Belfast is an example)
'strange bats around fairy' is the wordplay.
'strange' is an anagram indicator.
'around' is an insertion indicator.
'fairy' becomes 'elf' (elf is a kind of fairy).
'bats' is an anagram of 'bast'.
'bast' placed around 'elf' is 'BELFAST'.
'in' is the link.
(Other definitions for belfast that I've seen before include "N. Ireland city" , "City on the Lagan" , "Northern Ireland home to Queen's University" , "NI city" , "Capital of Northern Ireland" .)