"We live in the neighborhood on the hill."
Translation:Viviamo nel quartiere sulla collina.
The difference is whether or not the article is required. If the article is required, it gets glommed on to the back of 'in' as a contraction:
in + il = nel
in + la = nella
Here's a handy chart to study the patterns:
I don't know that there is a way to tell them apart when they end in 'e', so if there is a helpful hint I would like to know too. Since you're curious, here's a site that lists the the masculine nouns ending in 'a' which is quite irregular ...
It's actually the opposite, colle is a smaller hill or an elevated mountain pass between two valleys. Treccani defines the first as "Piccola elevazione di terreno, di altezza intermedia fra l’altura (più bassa) e la collina (più alta)" and the second as "In geografia, depressione altimetrica della cresta di una dorsale montuosa, che mette in comunicazione due valli".