Tells stories about cat in French city (7)
I believe the answer is:
limoges
'french city' is the definition.
(I've seen this before)
'tells stories about cat' is the wordplay.
'tells stories' becomes 'lies' (tell stories can mean to lie).
'about' is an insertion indicator.
'cat' becomes 'mog' (informal British term).
'lies' enclosing 'mog' is 'LIMOGES'.
'in' acts as a link.
(Other definitions for limoges that I've seen before include "foreign city" , "French city known for its porcelain" , "French commune" , "French city noted for enamels and porcelain" , "French porcelain centre" .)