The Ghost Town is a small non-solid portion of buildings and streets in Grand Theft Auto III. It is not intended to be accessed during the normal gameplay.
The Ghost Town is basically a small city block with the Liberty City Bank, and some stores, and apartments. This is the place, where the opening cutscene takes place. The streets and buildings are non-solid, and the town cannot be accessed without mods or hacks.
The Ghost Town is floating in mid-air, underneath the large hills of Upstate Liberty.
The Ghost Town is the set for the opening cutscene of Grand Theft Auto III, where Claude is helping Catalina rob a bank, before being betrayed and shot. It is highly likely that Rockstar designed the Ghost Town simply for the introduction cutscene of the game, and decided to not place it in Liberty City itself, so they simply placed it off to the side of the map, where it would be difficult for the player to get to.
In a Q&A, Rockstar said that the Ghost Town was meant to be a part of Liberty City. When a fan asked if the Ghost Town was "Jakota Island" taken out of the game, they said:
|“||We didn’t take an island out of the game. There were only ever the three. We think what people refer to as “ghost town” is just the small area of a city we built for the bank heist scene at the very start of the game. It never had a name, but we wanted it to be somewhere separate from the liberty map and so we built these few streets floating in space and assumed no one would ever find them. We noticed someone built a bridge mod so you can actually drive there now - amazing…||”|
The Ghost Town can only be accessed with a Dodo during normal gameplay, but the Dodo is known for being extremely difficult to fly (because the Dodo is programmed as a car instead of a plane). Plus, the player won't be able to land on the Ghost Town, because it is not solid, so if walked on, the player will fall into Blue Hell (except if used mods).