From my understanding, there are cities specified for each race as a starting city. Anyone may move to another city if they wish so. Within the four races, there are two armies/sides. The Military, and the Humunculi. Any of the four races may join either side, but in doing so you must move to the controlled territory of your faction.

Human Starting Cities: Dublith, Rush Valley, Reole
Alchemist Starting Cities: North, South, East, West, Central City
Humunculi Starting Cities: Hidden City, New Optain, Ishval, Riviere
Chimera Starting Cities: New Hiessgart, Resembool, The Slums

Military Controlled Cities: North, South, East, West, Central City
Humunculi Controlled Cities: Hidden City, New Optain, Ishval, Riviere