What would cause a place to be always misty?
It is in a Fantasy setting, but I am looking for a feasible explanation.
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You get mist when air with water in meets colder air and the water starts condensing out.
This will occur most commonly in places with a large body of water (like the coast) which moist air can blow off onto the cooler land. Could also get it in a valley which doesn't see much sun light to warm it but moist air from the hill side can flow down into it.
I don't know if any of these would make it always misty but definitely make it more likely.
Rainforests are famous for making their own rain. Plants transpire something like 98% of the water they take up. When you have a lot of plants, and it is already pretty humid, the result is lots of mist.
Fog can form when the difference between the air temperature and dew point is less than 2.5 C. Water vapor in the air condenses into tiny droplets. This often happens when moist air passes over a cool surface; this is called advection fog. There are two common ways this happens: a warm front passes over an area covered in snow, or warmer ocean air passes over a coastal cold water upwelling. The fog of both California and the Pacific Northwest, as well as Maine and Newfoundland on the East coast both come from this warm air over cold current condition.
Valleys ringed by mountains on all sides tend to not let stuff in the air escape. A famous example is smog in Mexico City.
However, this would work just as well for water vapor too. Have some region with misty air for any other reason, and then surround it with mountains. Lots of fog, all the time.
Down-wind of a waterfall makes a nice misty-rious setting. The image is Seven Sisters' falls in Cherrapunji (India). This happens to be one of the rainiest places in the world, thus having additional misty weather because of the phenomenon described by @kingledion.
If you want an always misty area you probably need something geothermal warming a significant body of water in an area where the air is otherwise cool. This will create mist but the problem is that the amount of mist is generally insufficient because the area of water surface is small relative to volume of cool air you want to mist up.
You could circumvent this by getting the moist air from a large network of warm and wet caverns but you would then need to have another opening that draws in the air the caves then warm and moisturize. A high mountain valley that is connected to lower altitudes by a veritable labyrinth of caverns filled with steam and smell sulphur?
In southern Morocco, along the coast, even though there is a lack of vegetation, there is a mild climate because of the Atlantic breeze. The area is on the edge of a desert and there is a mist that never leaves except when the dust storms blow, and that occurs usually in July and August, but then its hazy because of the dust.
Make your place very high, in an always cloudy region. It's simply within a cloud at all times.
Mountaintops are a natural choice. Could also be on a mountain's side, and the top be above cloud level. Or some magically floating shrine/city/whatever.
I’m not a meteorologist, but here is my interpretation. You need cold water, warm land, an onshore breeze, and a ring of mountains shaped like a basin to hold it all in. Most of this was already covered by other posters, but hopefully this elaboration will be of some value to you.
For example: Pacifica, California. It sits on the California coast a few miles south of San Francisco. Ocean currents bring cold water straight down from the Arctic Circle. Surfers don’t surf in Pacifica unless they’ve got a heavy-duty suit. It’s COLD in that water.
Pacifica doesn’t have much flat land. Modest hills run right out to the beach. The town is made up of nooks and crannies, buildings basically tucked into the small valleys.
On the other side of the hills, we get the Bay. Then some flat areas, then some more hills. Then the Central Valley. The Central Valley is long, flat, and hot.
As we all know, heat rises. As air heats up, it rises. This creates a suction action that draws in colder air.
So what does this mean for Pacifica?
Air hits the Central Valley and heats up. This draws in colder air from over the very cold ocean. This cold, wet air rushes over the town and hits the hills. The low fog gets trapped by the hills and simply pools around. With hills to the north, east, and south, there’s nowhere for it to go. The constant wind pushes the fog east, preventing it from flowing back over the ocean, but the hills are just a little too high to let the fog follow the breeze. So it stays in Pacifica.
End result: “coastal crud”. Forget trying to dry your laundry on a rack. Keep your fence painted or watch it rot. Cars in Pacifica start to acquire a patina. Metal disintegrates under the relentless combination of salty air and moist, damp conditions. Put a bookcase too close to a wall and watch the mildew thrive. Nevermind the books themselves, they’re goners. For your fantasy setting, I imagine every pier, every rope, every stationary organic surface, will be coated in green gunk unless it is painted, lacquered, or being tended with extreme care.
Lack of regular sunlight may cause a higher than average depression rate in your population. The surrounding areas are probably populated with ex-Mistlanders who couldn’t take it anymore and left.
I know you were specifically asking about mist, not fog, but I figure it’s close enough for your purposes. And I can talk about fog. I have quite a lot to say about fog...