Well, if you read the Crisis-crossover story introducing the Earth-Prime Superboy, Superman notices on our Earth(Prime) that NYC is sprawled out too far to where Gotham City and Metropolis should be. The implication is that what is one city in our real world is somehow broken up into three cities on Earth-One.
In early stories when they had legal restrictions from using real locations, NYC couldn't be used -- or any other real cities -- so that's why they used the fake names but used references suggesting what they really were.
Gotham was supposed to be the dark, seedy side of NYC.
Metropolis was supposed to be the more optimistic, positive side of it.
When they started referencing the real NYC, they were forced to treat the three cities as separate locations. But that Crisis story still sticks in my mind.
In some 70's and 80's stories, Metropolis and Gotham City were shown to be "twin cities" on opposite sides of some large bay, with New York as a third seperate city. Guessing the twin cities bit might've been done to make the World's Finest teamups easier, or someone figured there wasn't much space on the east coast to begin with as it is, or some writer grew up in some twin city area ;-)