Just to add more ideas to the synthesis:
I've always felt Hyrule Town should be kind of on a hill:
Brown indicates the lowest level, the slums. It was once the town's moat before it grew so much, but was altered to be habitable. As it used to be the moat, a bridge from the town's south gate goes over the slums, so you don't need to go through the poor part of town, but can pass over it.
Blue indicates the old town, the mid-level. Before the town grew, this was the entire plot of the town. A fountain in the middle of the market is placed right in the middle of the grand avenue leading from the south gate to the castle.
Purple is the highest part, Hyrule terrace, level with the castle.
Blue and purple are the rich part of town, while brown is the slums.
I didn't draw the buildings and stuff very accurately, they're just there to enhance the drawing. The only details that really matter are the colors indicating height/social class, the bridge that allows you the rich to avoid the poor part of town when coming and going, and probably the market.
A couple details I just thought would be cool stuff are the courtyard area, and the lines hanging across streets, which would allow Link to get from building to building on the roofs.