Translation:We are going to a restaurant in the square.
While American English and British English seem to differ on whether it's in or on the square, we always use op. I think the fact that it says "in" the square is throwing you off. This is an English anomaly, not a Dutch one.
Same goes for in the street. We would say op straat.
I'm not a native English speaker so I'm quite confused, does 'square' mean junction in here or something else?
No, this is a square:
So, like a big area surrounded by buildings on all (often 4) sides. (De Dam (this image), has a road in between). There are also roads on either every corner, or in the middle of the side.