Fly City is the city that was created by the superintelligent flies by the year 3000 AD. It is loosely based on the setting of Planet of the Apes, appearing in "Planet of the Flies."
In the episode, Time Squad is found outside of the city by soldiers and are labeled, "deserters." The city begins a trial and assigns the team an attorney, but the judge declares them guilty right away. He then sentences them to hard labor in the Poo Mines, but Larry teleports the team away before the soldiers can take them away.
Not much of Fly City is shown- we only ever see the beach on the outskirts of the city and the courtroom. However, the citizens are all anthropomorphic, clothed flies, and some even have hair.