Downtown is an expansion of the city. It acts like a Second City and has its own goals, buildings, etc. although most regular items also work in Downtown and vice-versa (note that while Downtown items can be placed in your regular city, not all their features may be availible).
To access your Downtown, a Downtown Icon was originally located above the Tools Menu icon where the Leaderboards is currently found, but was removed. On July 11, 2012 the icon was added back, but placed within the Tools Menu.
All players are given a Downtown Portal, a 12x24 item, for free along with 2 free expansions to hold it. Players, however, need to be Level 20 to be able to access the portal. The Downtown Portal transports you from your regular city to your Downtown City by clicking it. During the Beta, players were given the option to buy Downtown by clicking the portal for 150 Cash or when on Sale it could be purchased 60 Cash or 90 Cash. Early players were also given a free Roof Top bar business.
Downtown Value Allowed determines if you can expand or buy certain buildings here. This is the same way Population worked in your main city. So Downtown Community Buildings allow more Value to be added. (They also allow Population, but that doesn't mean as much). Downtown Value is the overall 'worth' of your businesses, houses and decorations. Like population was in the main city, current downtown value must stay lower than your value allowed.
While you can use non-downtown buildings, they do not allow or give Downtown Value. Using Downtown buildings or decorations in your main city doesn't help your downtown.
See Zynga's official guide to Downtown.
The initial portal starts at level 1 with a 3 square bonus area surrounding the portal and a 1% bonus payout. As expansions are made in the Downtown game, the level of the downtown portal increases which also increases the size of the surrounding bonus area and the payout. At level 2 the bonus area is increased to 5 squares around the portal with a 5% payout. At level 3 the bonus area is increased to 15 squares around the portal with a 10% payout. At level 4 the bonus are is increased to 30 squares with a 15% payout bonus. At the highest level the bonus area reaches out 50 squares from the portal. The maximum level provides a 25% payout bonus. The portal is kind of like a super super garden.