Panchakrosha are the palces where Ishwara,Shiva is present in His full Glory and He rules over the city, its people, beings both living and non living. As a result people visiting these Kshetras are removed of their evil and negative thoughts and are ruled by Ishwara. This is one of the reasons why people are advised to perform Sradhdha in Varanasi as the Mind will be pure.
Aurngazeb, destroyed the original Kasi Viswvanatha Temple and had a Mosque built on the land. He called it the Gynavapi, the Well of Knowledge. Into the Well was thrown the Kasi Viswanatha Idol.
So Kasi is at least 7000 years old. The spiritually correct name of Kasi is Avimukta. There is a legend that the name Kasi is due to the two small rivers that flow Kasi, Varana and Asi before they join the Ganges.
Rudra represents one aspect of Shiva, Destruction and this is eveident from the first sentence from the Sri Rudram. Om Namao Bhagavathe Rudraaya, Namsthe Rudramanyave' My prostrations to Rudra, My prostraions to His anger" Implied is the fact that anger leads to desruction.
Whether Adi Shankaracharya is the incarnation of Lord Shiva is point left alone. There are some who dispute it. However what one can not dare to deny the fact that He was an intellectual Giant .. Shankaracharya was engaged in an argument with Buddhists on Reality and the nature of the world. The main pivot of Shankaracharya's Philosophy rests on His assertion that Permanence is Real and Change is Illusory. For the Buddhists, Change alone is permanent and there is no Permanence Totally diametrically opposite point views. Buddhists argue with Shankaracharya thus. Take a Candle. It lights up the area surrounding it. It releases Energy, and loses Energy every micro second.