While flying on his quest to save Fantastica, Atreyu gets knocked off of Falkor as they are caught in an argument with the four Wind Giants. Atreyu awakens without the AURYN on a beach near the ruins of Spook City.
Spook City is home to various creatures of darkness, including Gmork.
While wandering around Spook City, Atreyu finds Gmork, who is chained and on the verge of death. Gmork tells Atreyu that every resident of Spook City has voluntarily thrown themselves into The Nothing, becoming lies in the human world.
In the first film, Atreyu wakes up on the beach near Spook City and comes across the Rock Biter, who is grieving that the Nothing blew his friends - the Nighthob and Teeny Weeny - away, and, solemn and alone, the Rock Biter decides to be taken away by the Nothing as well.
After Atreyu kills Gmork with a stone knife, the Nothing arrives and blows the remains of the city away. Atreyu clings onto a tree branch and is almost blown away when Falkor comes and saves him while the Nothing consumes the land.
Spook City is a heavily-ruined city, surrounded by the Sea of Possibilities.
Behind the Scenes
For the scene where Atreyu clings onto a tree branch, they secured a camera tripod to the set, activated large wind machines, and tilted the whole set 90° vertical, sending everything falling off the set, but with the camera rolling, they made it appear as if the wind was so strong it could blow away the ruins of the city.