All cars, including the Prius, do get worse mileage during typical suburban or city driving, unless it's slow enough that they can stay in electric-only mode. Driving in cities sometimes is slow enough, but regular suburban driving is not -- you run the engine much of the time.

Highway driving is much more efficient. I drive from San Diego to LA and back at speeds usually between 75-85 miles per hour (most often at 80) and got 39.2 mpg according to the display. But it went down to 38 after the trip due to city/suburban driving. I get around 35 mpg with non-highway driving.