Yes, "cut" is passive here. A fuller version would say "staircases [that had been] cut into courtyards and down in cellars." The image is of a staircase that projects into a courtyard, probably in a slightly unusual way. The stairs don't seem to be a natural part of the courtyard's architecture, and the way they've been inserted into that architecture makes it seem as though the courtyard itself has been "cut into" by their presence (as if you had to physically remove a small part of the courtyard itself in order to make room for the stairs).