What is the smallest city in your country that everyone can still instantly recognise the name of? What is it famous for?
In the United States, I'd probably name Oregon City, the famous end of the Oregon Trail and the first city founded west of the Rocky Mountains during the pioneer era. Its population is only 37,000.
Not my experience, as a Canadian. I'm guessing Europe is a bit more ignorant, but they'll still know about the other big cities and basic regions like the South. In the third world you might be right. No clue about East Asia.
It doesn't matter that it isn't actually about the city. That doesn't change that people think of and know Panama the city due to the song. They either know it because they think it's about the city, or they know it because they're like you with their "actually", which shows that you and anyone else who knows it's about a stripper still knows of the city.