Zendar is the starting city. Unlike most towns it has a large and unique design (although this is changing, as other towns get expanded) and is neutral. Like all towns it has an Arena, where combatants can try their luck and win fame and fortune, and there is also a trainer who can teach you combat skills and rewards you with experience.
Unlike all other towns you leave when you hit rather than getting a destination menu (which allows you to jump directly to the merchant/castle/etc.) and you also can't ride your horse in town.
Trainer
The trainer offers free fighting tips and practice. You'll have to listen to the combat basics before being able to train. The training is set up in tiers, with three fighters per tier. If you beat three fighters in a tier, you will go up a tier. Every time you go up a tier you'll get 100 EXP (when you talk to the trainer the next time), so it's good to run through this for some easy EXP even if you already know how to play. There are four tiers (12 fights total), two and then Veteran, then Champion; by beating the final tier (the champions) and then talking to the trainer you will receive 300 EXP.
After finishing the training, you can return at any time to do more (but without the EXP bonuses). All opponents will be Champion Fighters.
Constable Hareck
The constable will reward you for hunting down river pirates in the area around Zendar. If you accept he will give you a basic shield to help on your mission. You receive 25 gold for each group of pirates destroyed.
Arena
A good way to both make money and also gain experience. See Arena for more.
The Happy Boar (Tavern)
The arena fighters (Kradus, Xerina, and Dranton) loiter here and talk about their victories. In versions up to 0.808 you can also find the penniless merchant Marnid here. He'll join you if you bring him a Padded Cloth. He'll take any condition but he won't accept any other armor type, even better ones. In 0.890 and later Marnid will randomly spawn in one of the many taverns around the land, so it's very unlikely that you will find him here.
There's also a chest that you can store items in. Don't bother exploring the Happy Boar beyond the first floor (the stairs behind the bar), it's three stories tall and there is nothing to interact with.
Slave Trader Ramun
Ramun buys captured prisoners for 20 gold each, regardless of their status.
Merchants
There are two merchants outside. Rabugti sells armor while Dunga sells weapons and shields.
The Zendar merchant (inside his shop) sells cheap Tools and will pay good money for Salt.