I find the blue circle appears where resources will be range the most often. Fresh water access being another. They don't look into the fact the area might be full of desert tiles though.
My way of placing a city...
1) I look for a spot where I can suck up the resources around the general area. I try to get 2 resources into the city's cross radius, without hindering the city with bad tiles. If I can get much better tiles and only grab 1 resource within the cross, that's fine.
2) I look for fresh water access too, but mostly just for the starting cities. Later on with more health available to me, I would much rather have good tiles/resources.
3) I try to avoid tiles that offer nothing like desert, ice, and mountains. Sometimes 1 square difference in settling a city means 3 more tiles worked, and way better resources/tiles.