"Det er te i koppen."
Translation:There's tea in the cup.
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My understanding is that "der" is specifically for a location, while "det" isn't. They aren't interchangeable because they don't actually mean the same thing. Both of these uses of "there" in English just happen to use the same word.
There is tea in the cup = Det er te i koppen.
The tea is in there = Teen er i der.
I think "det" translating to "there" in English is more to make it fit with English grammar and modern word usage than a literal translation. Someone asking "What's in the cup?" can be answered in English with both "there is tea in the cup" AND "it is tea in the cup." The meaning is essentially the same. So "det er te i koppen" more directly translates to the latter, while most people would probably say the former.
The sound of "i" is very close to the sound of a slightly lengthened "te" but, as you say, context makes it clear there's something else there. It's like if an English speaker said "pen'n'paper" - they could just be saying "pennn... paper" but that wouldn't make any sense.