I believe the name Cair Paravel refers to just the castle as the capital of Narnia, up until Caspian's reign when there is town I think it changes to the castle and the town to all be considered the capital Cair Paravel. When the Pevensies ruled it was only a castle without any surrounding buildings, so only the actual castle could be called said name. It really depends on which time period you're writing it in!
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In LB it sounds like it is a city. That's the impression I got. I always immagined it as a city, because it is the capitol.
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I always saw it as a medieval city--the castle in the center, surrounded by the city...something like the castles of Edward I in Wales. Since it's a capitol, I always thought that would be more plausibe than just a castle by itself.
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