No, it's not below a town; it's just a cavern complex from which a river issues. The assumption is that the river comes straight from the plane of water. THe river never lowers its level in times of drought.
And this project is perfect for you. I haven't made up any more about the Endless Well than that, and it has had little historical bearing that I know of, so you don't need to know alot about the world to make it up.
Here's the map, although it looks like you have already found it: