"여자가 길에서 웃습니다."
Translation:The woman laughs in the street.
It might be because laugh is a more active verb in the sense that it happens suddenly and doesn't describe a passive state. On the other hand, you could be continually standing as opposed to suddenly standing up. I think (not completely sure) that's where the difference between 에 and 에서 comes in:
남자가 길에 섭니다 - The man stands in the street. I.e. He's been standing there a while and is still standing there. This is a passive "stands". This might be an answer for example to a question like "what is the man doing?".
남자가 길에서 섭니다 - The man stands in the street. I.e. He wasn't and suddenly stands up. This is an active "stands". This might be something said after a sentence like "the man walks in the street".
Again, not entirely sure. It may be the case there's a different way to say case #2 here that I don't know about yet.
Duolinguo uses typical English sentence structure of Subject/Verb/Object to emphasize the difference from the Korean sentence structure of Subject/Object/Verb. Although what you wrote is understood in English, it is only ever said like that as a multiple choice option on standardized achievement tests in school as a phrase to test grammar structure. If you write in the SVO sentence structure, it should be correct.