You reject the method Distinct().
Change it to
return orders.Select(o => o.City).Distinct().ToList();
Or, using the syntax for understanding the request:
return (from o in orders
select o.City
).Distinct().ToList();
(mark parentheses)
Distinct City, .
String IEnumerable<char>, IEnumerable<char>, .
ToString() ( , System.Core.dll), System.Linq.Enumerable+d__81`1[System.Char].
.Distinct() IEnumerable<string>, Select.