I don't think there is an explicit in-universe reason for choosing this site - but we can use what we know from BSG to work out why they might choose it.
The planet they discovered was actually quite inhospitable, and there was a very small temperate zone that they could settle within. Add to that, the need for water, and the need for solid ground that was easily cleared and built on for a first stage settlement, and then you arrive at somewhere like the site in the picture above.
The fleet consisted of less than 50,000 humans at this point, and you have to think exactly how many of that population would be qualified to design, engineer, and build dwellings and factories. Also, the resources immediately available to the colonists would be extremely limited - unless they happened to have construction equipment in a cargo container, they're going to have to do a lot of work by hand, at least until they can set up mining, smelting, and factories.
Not a lot of time passes between the landing and the arrival of the cylons, only a few months, if I recall correctly. So, spreading out into the hinterland would have been limited - it makes sense to centralise your population at first as you start to build up your infrastructure.
Finally, if you were to site a city - would you waste limited fertile ground (back to that limited temperate zone) for building on, or would you build on infertile ground and put farms on the green bits nearby?