Translation:People speak Gaelic in the Highlands.
In ‘people in the Highlands speak Gaelic’ the subject would be ‘people in the Highlands’, a single phrase (while the predicate – the thing those people in the Highlands do – would be just ‘speak Gaelic’).
In ‘people speak Gaelic in the Highlands’ the subject is just ‘people’, while ‘speak Gaelic in the Highlands’ is the predicate. So those two sentences are grammatically different.
The Gaelic sentence here has just daoine (people) as its subject, so only the second translation fits here.