Southtown is run primarily by a wealthy crime-lord named Geese Howard, who is perfectly capable of eliminating anyone who he sees as a threat to his power. He is also the originator of the "King of Fighters" tournament, using the tournament to further line his pockets and to gain even more influence in the city.
While the RPG is based off the games and the OAV's, it isn't just about fighting. Southtown is choking in the iron grip of Geese Howard and some of the city's current residents take extreme displeasure in this fact. How your character reacts to it is completely up to you.