About associative nature of awk arrays i'm still confused, not able to understand yet how array element can be accessed based on a string, I got one example at gawk manual to illustrate associative nature of awk arrays, it goes here:
Code

awk '
# Print list of word frequencies
{
    for (i = 1; i <= NF; i++)
        freq[$i]++
}

END {
    for (word in freq)
        printf "%s\t%d\n", word, freq[word]
}' test.txtIf

Kuwait  UAE     Qatar   KSA     Jordan
Lebanon Egypt   Syria   Kuwait  Qatar

Syria   1
KSA     1
Lebanon 1
UAE     1
Qatar   2
Egypt   1
Jordan  1
Kuwait  2

i want to explain, but my english is not good enough.
maybe this could help.

I have modified your code to illustrate the contents of freq at each iteration:

$cat freq.awk
#! /bin/ksh
awk '
# Print list of word frequencies
{
    for (i = 1; i <= NF; i++)
{
# Here loop variable i will contain values like 1, 2, 3 until last field of 
# Record which in your case is 5, so $i will behave like $1, $2, $3
# Following condition will lookup in array if key($i ie name of city in your case)
# Already exists in array or not

        if ( $i in freq )     
        print "Key(" $i "): is already there in array and its frequency or value is:  " freq[$i]

# In the 1st iteration of loop, $i($1) is equal to Kuwait, so freq[$i]
# Means freq[Kuwait], because you dont have any value associated to key Kuwait
# Therefor freq[$i] yeilds to zero and ++ operator increases it to 1

        freq[$i]++

# Print the record no., field no. value of key and freq associated to key, at each iteration of loop

        print "Record No." NR "\tField No: " i "\tValue of key: " $i "\tFrequency of word: " freq[$i]
}
print "\n"
}

END {
# Loop thru the whole array(freq) and find the associated value to each key
# Here word denotes key and freq[word] refres value associated to each key

    for (word in freq)
        printf "%s\t%d\n", word, freq[word]
}' abc.txt

$cat abc.txt
Kuwait  UAE     Qatar   KSA     Jordan
Lebanon Egypt   Syria   Kuwait  Qatar

$./freq.awk
Record No.1     Field No: 1     Value of key: Kuwait    Frequency of word: 1
Record No.1     Field No: 2     Value of key: UAE       Frequency of word: 1
Record No.1     Field No: 3     Value of key: Qatar     Frequency of word: 1
Record No.1     Field No: 4     Value of key: KSA       Frequency of word: 1
Record No.1     Field No: 5     Value of key: Jordan    Frequency of word: 1


Record No.2     Field No: 1     Value of key: Lebanon   Frequency of word: 1
Record No.2     Field No: 2     Value of key: Egypt     Frequency of word: 1
Record No.2     Field No: 3     Value of key: Syria     Frequency of word: 1
Key(Kuwait): is already there in array and its frequency or value is:  1
Record No.2     Field No: 4     Value of key: Kuwait    Frequency of word: 2
Key(Qatar): is already there in array and its frequency or value is:  1
Record No.2     Field No: 5     Value of key: Qatar     Frequency of word: 2


Syria   1
KSA     1
Lebanon 1
UAE     1
Qatar   2
Egypt   1
Jordan  1
Kuwait  2

Shereenmotor, Thanks a lot for your detailed reply.