It's you because of Habitas
In Portuguese (for example) to say "You live" you can also say "(Tu) habitas"
Romae is just inflected to say "In Roma" I guess but I'm no Latin expert
Yes, Romae is in a "locative case", the noun case about place, which is a minor case used only with some specific place like Rome (Romae), home (domi) and etc. but very very few. It gives a meaning of "at the place" or "in the place". The course just ignore to say about the locative case at all (at this point), maybe to avoid confusion if too many grammar rules are introduced at this point. Or maybe, they think it's too much in detail to talk about locative now.
More information here in wiki https://en.wikipedia.org/wiki/Locative_case#Indo-European_languages
Tú "habitas" el lugar/You live in (inhabit) the place. Yo "habito" el lugar/I live in(inhabit) the place. Spanish ^
Why would Romae habitasne be wrong--would it not make sense, meaning "Do you live in Rome?" Or was it wrong because there wasn't a question mark?
Thanks -- my book said "usually" so I wasn't sure how strict the rule was:)