Yes, the old Proto-Indo-European locative case did disappear into the ablative in Latin. However, the names of cities, towns, and small islands and the words domus, humus, and rū s held onto those antique forms.
As for those special words, they have special locative forms:
domus becomes domī (at home)
humus becomes humī (on the ground)
rū s becomes rū rī (in the country)
As for the names of cities, towns, and small islands, here are the locative forms:
Table 8-5 Locative Case Across the Declensions
Locative case endings really don't offer much new for you to learn. Here's a shortcut: All the locative forms are the same as the ablative. Only first and second declension singular place names (like Roma) are different.
What makes an island “small”?
A small island is one that is so small that it has only one town on it, and the name of the town and the name of the island are the same.
TABLE 8-6 is a chart that summarizes everything in this section:
Table 8-6 Place Constructions