The Undercity is a myth, a joke locals tell visitors or even a story to frighten naughty children “If you don't behave I will sell you to the goblins from the Undercity”. No actually believes it is true, except the people who know how to get there.
The Undercity is a large series of caverns, caves and tunnels roughly underneath the surface city of Twill. These were once home to Fay armies but were abandoned near the end of the rebellion. The settlers on the surface sealed the entrance and quickly forgot about the spaces beneath their feet.
Blessed with a good supply of water and natural tunnels connecting it to other major underworld locations, the Undercity is as an attractive place for underground creatures to settle. Within a few centuries of the collapse of the Fay, the Undercity had a small but permanent population of goblinoids as well as dwarves, dark elves and others. Overtime, the population has fluctuated in size and mix of races but there has always been someone (or something) living in the Undercity for thousands of years.
Whereas the surface city of Twill is compact, hemmed in by city walls, its underground twin is spread out over many square miles and with many hundreds of vertical feet separating some parts. It also has a population of only a few thousand souls, about a quarter the surface city. This gives the Undercity a very low population density and it is more akin to a series of family compounds and hamlets than a true city.
Exactly when the surface and sub-surface cities came into contact is not clear. It is possible that there have always been ways between the two populations and that the twin cities are symbiotically linked. However, a fear of the underworld races has existed since the Fay and the rebellion and the surface world rulers have always tried to prevent contact (at least officially). Depending on circumstance, anyone caught dealing with the Underworld has faced punishments raging from fines to execution.
Current attitudes towards contact with the Undercity date back to the first 1st Lord of Twill. At that time the city faced goblin and orc raiders coming up from the Undercity so naturally the surface city had few feelings of goodwill towards the underground races. An attempt was made to destroy all the entrances to the Undercity and it proved very successful. Over generations, the Undercity faded into folklore as a dark and tormented place that was home for every one of surface people's fears and bogeymen.
Several active entrances to the Undercity lie within or close to the surface city. The people who have possession an Undercity entrance / exit keep them secret and secure. Being able to control the travel and trade between the two cities is profitable. There are also the chance that something dangerous will try to come through them. This applies equally to both ends of the entrances. Those down below are as afraid of attack from above as surface folk fear the dark races.