"Your daughters live in Italy."
Translation:Filiae tuae in Italia habitant.
Makes sense. It's tricky to know which nouns the locative case could be applied. It's pretty straightforward usually though.
Just think towns/cities = locative.
We say that small islands also use the locative. This is because small islands in roman times would typically have one town on them, and be named after that town. Hence the rule that town = locative applies.