Apparently the term originated with the practice of the practitioners of the art hanging red lamps in the window when open for business. A "red light district" usually refers to an area where prostitution is tolerated. While prostitution is illegal in most states, it is still the world's oldest profession, and does not seem to anywhere near eradicated (or even limited). The term is usually used to loosely define an area, and is not confined to cities.
Red Light District is the term used in many states to identify the area where prostitution is done. Many states have anti prostitution laws which makes it illegal in that states and they call the places as red light areas.