Translation:I live in Budapest, but she lives in Veszprém.
hanem is but rather
To use hanem, you generally need a nem in the first half of the sentence. He is not X, but rather Y. Kati nem Budapesten lakik, hanem Szegeden. Kati does not live in Budapest, but (rather) in Szeged.
de is simply but, use it in the situations where but rather would not fit.
Hey guys (whoever works for Duo here)! Instead of referring to random comments in random exercises, why don't you create a reliable reference book (grammar, use of language etc.)? Something like they have on hungarianreference.com. You could provide than links to rules applied in any exercise below the correct answer. Once a person made a mistake he or she can click the link to rule in reference.
I am sure it would take away majority of SAME questions people are constantly asking here in comments. And you would have more time to improve the quality :)
In order to express "she is in Veszprém", you would need the verb van in the second clause: Én Budapesten lakom, de ő Veszprémben van. (I would also then probably use pedig instead of de since there is not such a direct opposition between the two halves anymore.)
With the sentence as written, the only sensible interpretation of the second clause is that the verb is implicitly the same as in the first one.