"The students exercise at school."
Translation:학생들이 학교에서 운동합니다.
에서 is for an activity taking place at a location or coming from a location. 에 is used just for describing existence at a location.
For example, if the students were sitting at the school (not doing anything) 에 would be used. But since they're exercising (an activity), 에서 is used.