The Old City was an 800 square mile walled-in city-state housing forty-four recognized noble houses, called Fastheld. Serfs worked the lands outside the walls in exchange for protection from the nobles within. Noble expansion beyond its walls began with the Lomasa settlement of Elkmont around 150 ATA.
With the raising of the Aegis in 0 ATA (and Talus Kahar's subsequent naming the new, larger space Fastheld), there were fewer advantages to living within the Old City. When Talus Kahar made Caryas Hill his center of power rather than the Old City, it marked the beginning of the City's decline. Those that did not accept the Emperor's rule flocked to the City in an attempt to hide from the Blades, as they no longer had rights within Fastheld.
In 182 ATA, a severe pox called the Shadow Plague begins infecting residents of the neighborhood now known as Gatetown, causing blindness, gross disfigurement, and a slow but agonizing death. By the end of the year, it had spread throughout the Old City. In 183 ATA, Talus Kahar V prevents all movement in and out of the Old City. By Huntsmoon, he makes the call to send the Emperor's Blades into the Old City and slaughter every man, woman and child that is still alive in hopes of eliminating the Plague. While tens of thousands were killed, it did, in fact, stop the Plague. But by Lightfading, the Old City is completely uninhabited. It is hereafter called the Shadow District after the pox that doomed it.