Sunken city is a dungeon located in The nightside. The nightside is located through the waterfall by rainbow bridge in the commons. You have to complete wizard city to be able to unlock this area, or you can port to a friend. I would recommend waiting because when i did it, it was so exciting for me to see this new area on my own!
It's in a place called nightside. Once you have access to that place, go under the Rainbow Bridge Waterfall and there will be a door with a skull on it (, the only door through the waterfall). and then you have to speak with this girl named Marla. She will have you do a bunch of stuff then she will tell you to go to Sunken City. If you are not a high level wizard, i will have friends help you or wait until you are in your lateb 20s or 30s.