The question of which village in particular Cervantes refers to here has been a subject of some dispute. In a later chapter it is explained that the tale's narrator leaves Quixotes village nameless "so that all the towns and villages of La Mancha could fight amongst themselves for the right to adopt him and make him their own son" (page 980) - which is precisely what they did, and are still doing today.
Argamasilla de Alba (pictured) has long been a popular choice, apparently due to Cervantes' one-time imprisonment there. However, a late charge has been made by the village of Villanueva de los Infantes, identified in a 2004 study by academics at Complutense University who tried to calculate Quixote's movements based on how far his old nag could have travelled in a day.
Whether any such claim should be credited, and regardless of whether Cervantes had a real village in mind at all, the continuing debate is a testament to the enduring power of his fictional creation.