How to choose your "cities" is covered in class in great detail. This explanation does not replace what's explained in class, it only summarizes it, and provides you links, where available.
1) It's important for you to choose three distinctly different cities. You don't, for example, want to choose Overland Park, Kansas, and Kansas City, Missouri. Those two cities are essentially the same "market," at least in terms of how the advertising industry treats them.
You are really choosing markets, and more specifically, "Designated Market Areas" or DMAs. Since this term is harder to understand, in class, I just refer to your choices as cities. But you really want to convert "cities" to "DMAs" in your mind, as soon as you're ready.
To help you with this, use this DMA Profiles and Maps source from SRDS. If your city isn't listed here, then you might need to change your city choice. In most cases, if your city doesn't appear on this list, it's too small. It's possible, though, that it's part of a larger DMA, in which case, you want to choose the DMA group name as your "city" choice. For example, you don't want to choose Waterloo, Iowa, but you would choose Cedar Rapids-Waterloo-Iowa City & Dubuqe, IA. Yes, it's wordy, but that's how you would list your "city" choice in your paper.
2) If you follow No. 1 above, then this No. 2 will happen naturally. But, remember that you need each city to be "big enough" to target. I'm giving you a client that will automatically require at least medium-sized markets (cities). I do this for a reason: you can't buy ads if there are no ads available to buy.
For example, you can't buy a TV ad during American Idol that only appears on Maryville. That's basically because Maryville isn't a DMA. There's no cable company here who sells ads only to Maryville advertisers. The city is too small. But, you can buy a TV ad in the St. Joseph DMA. How do you know this? Check that SRDS link in No. 1. If you don't know which city to search for in that list, then start with Google Maps. Search for the city you are considering, then look around that city for bigger cities that might actually constitute a DMA. Check the bigger city name on the DMA Profiles page.
You can use the "map" link from the DMA Profiles source to see which cities are included in a DMA you're considering.