Not really in the mortal realm at all, the Arcane Arena is a pocket dimension that is permanently attached to the Tower of Lenthos.
The floor is a battlefield filled with various obstacles to make it hard to get from one side to another. These obstacles are from a magic effect permanently imbued into the arena itself, and change to make a new battlefield from year to year. When the pocket dimension was created the effect was designed to actually create a kind of scenery, usually in the form of ruins and half-destroyed buildings.
Purpose / Function
The Arcane Arena was made to hold the yearly faculty tournament of Bannersnatching. It has been virtually unchanged for several centuries.