"Let's hang out in Seoul tomorrow!"
Translation:내일 서울에서 놀아요!
Exactly. This is a location particle (not really preposition as it comes after the noun, not before).
The choice between 에 versus 에서 depends on the verb that follows. Action verbs (like this one) require 에서, "movement" (don't remember the exact terminology) verbs, like 가다, 오다, etc, require 에.