You'll find a portion of your answer in these earlier answers from /u/drylaw on the Spanish treatment of Tenochtitlan and from myself and /u/drylaw on the position of cities in Spanish and indigenous worldviews. The main takeaway from these is that cities are so much more than just a place to settle- they are religious centers, social centers, economic centers, and, for the Spanish, a hallmark of the civilized living of Christendom. Thus, destroying a city is not just about usurping "fairly nice location:" it's about the symbolic violence of usurping a temple, plaza, or gateway.

The story of Cusco is similar to that of Tecnochtitlan. Many of the most prominent religious and political buildings were torn down and built over with an equivalent Spanish institution. The Qoricancha, main temple of the personified sun Inti that is said to have been entirely gilded in gold, had its superstructure demolished and replaced with the Convento de Santo Domingo. To this day, the symbolism of the Spanish church sitting on an Inca foundation isn't subtle. The Santa Catalina convent was built on top of the old acllahuasi, the residences and workshops of women selected from across the empire to serve the royal family by weaving, embroidering, and brewing.

Now, this was also done to re-code urban spaces as white & European. I've touched a bit before on colonial policies on race. While the idea of "two republics" never manifested, the principal guided colonial laws incorporating cities and towns. In the ideal plan, indigenous folk lived in reducciones administrated by religious orders or in towns centered on hacienda plantations. Of course, as politics played out, things went differently. Hacienda owners, originally conquistadors granted land by the crown, rapidly ran their operations into the ground through abusive mismanagement and had to be regulated. Quechua nobles remained in cities, aligning themselves with Spanish elites to retain their wealth and power. In highland cities like Cusco or La Paz, the urban-rural divide would eventually became less one of perceived native or European ancestry and more one of class and performed indigeneity. Elite indigenous families actually actively resisted the revolts of Tupac Katari when his primarily rural, Aymara army laid seige to La Paz, just as they fled to Cusco when sentiments of rebellion against the Spanish crown emerged in Lima.

Such qualifiers aside, colonial Andean cities were implicitly and explicitly European spaces well into the 20th-century. It wasn't until the '50s and '60s that the hacienda system in Peru and Bolivia was legally dismantled, and it took decades more indigenous populations to establish urban communities. Even today, many Aymara speakers that sell in the markets of La Paz and El Alto, Bolivia are seen as "indios" by urban shoppers but as mestizo, "mixed," when in their rural homes. When new public transit cable cars connected affluent parts of La Paz with the outskirts a few years back, people complained that they started seeing "certain types of people" in the stores near the stations. To connect this back to your question- the Spanish treatment of cities in the Andes was partly an act of symbolic violence, but also a reassertion of these cities as European spaces.

Some good books on Andean cities:

Buechler, Hans C. The Masked Media: Aymara Fiestas and Social Interaction in the Bolivian Highlands. Walter de Gruyter, 1980.

Burns, Kathryn. Colonial Habits: Convents and the Spiritual Economy of Cuzco, Peru. Duke University Press, 1999.

Garrett, David T. Shadows of Empire: The Indian Nobility of Cusco, 1750-1825. Cambridge University Press, 2005.