My wife currently resides in the Philippines. She spent a little over a year in Austria when she was 18. An immigration lawyer told her that she shouldnt need a police clearance from Austria as she is living in the Philippines. I think she will need one from Austria. Am I right or is the Immigration lawyer right?

Also she has a NBI Clearance from the Philippines will this do or does she need one from each city? She lives in Manila right now but also lived in Davao City. If she needs one from each city can she get it without goint to Davao City or does she have to fly down there and get it in person?

If you follow instructions that pertain to the Philippines then you must get the Police Clearances - all of them.
Any place, city, municipality or country lived in in excess of 6 months since the age of 16.
My wife got 6 total in the Philippines including her home province - she never lived in a foreign country.
The Police Clearance must follow the standard "format" of the NBI Clearance which includes photo + thumbprint and must specifically state "for abroad" or "for US Immigration" etc.