As I understand 'hvor' would not work in this context. Could someone explain when should one use hvor and where der (when the meaning is 'where')?
There is generally used as a placeholder, for instance: A: Jeg er på kafeen! B: Jeg vil også være DER. B's answer is equivalent to saying "Jeg vil også være på kafeen", thus we can say that "Der" is a way of avoiding to repeat a place. As stated in a comment below - if you can replace "der" with the place you're substituting, you can probably use it in that sentence.
Hope it clears some things up, even though I'm two months late :D
This is not a good explanation in this context, though as 'der' serves a different purpose here.
Above: In that case, say A and B are talking in the telephone. The use of "Der" usually requires that you know the location you're talking about. I'd still stay it's mostly used as a way to avoid repeating place names, or talking about a place distant to yourself or both speakers.
In University of Oslo and the Language Council's online dictionary, der is defined as: "At this place, a bit over there, different place than here. Relative adverb: Stedet DER han sist ble sett / Huset der vi bor"
Would it be right to say that 'hvor' would only be used as 'where' when it is used as a question word, e.g. 'hvor er du?'
A lot of this is very similar to Old English where th- (þ-) forms are used as relative pronouns for the wh- (hw-) forms that are used for both questions and relative pronouns.
For example: 'I enjoy what he did' = 'Ic breac þæt þe he dyde' or 'home is where the heart is' = 'ham bið þær þe bið heorte'.