When the main action of a novel is set somewhere with a name that sounds identical to "cake," it's a pretty big tipoff that the location is going to be a pretty big symbol. An author doesn't just name a city after the dessert you wish on/consume on your birthday by accident.
Eggers tells us the King Abdullah Economic City is a product of wish fulfillment rather than reality. KAEC promises something revolutionary—a modern city with unprecedented freedoms, a development that conquers the forces of nature—but like a mirage, it disappears on closer inspection:
The road was new, but it cut through absolutely nothing […] It was as if someone had built a road through unrepentant desert, and then erected a gate somewhere in the middle, to imply the end of one thing and the beginning of another. It was hopeful but unconvincing. (V.41.40)
The illusory nature of the city in the desert is reflected in society as a whole. Things are never what they seem in Saudi Arabia. It's a society that restricts the behavior of its citizens (male and female), yet there's a subculture of hedonism and transgression. While this subculture exists on the down low, it's the worst-kept secret in the Kingdom.
Everybody knows where to find alcohol; all married women carry two cell phones.
On the other hand, the freedoms that are promised at KAEC and even advertised are ambiguous and dream-like: there are no guarantees that they will come through. Even the freedom allowed foreign workers in the Black Box has to be shielded from the outside world so that everyday citizens aren't tempted by them.
As Alan understands pretty quickly, Saudi Arabia is a land of contradictions. The image of city in the desert—a megalopolis that may never be, the idea of life springing from a hostile environment—perfectly sums this up.