Learn French: Dans la rue, il y a une petite boulangerie. - In the street, there is a small bakery.

You are right about the literal translation! Il means "he" or "it", y means "there", and a means "has". However, when put together, il y a is a fixed, everyday expression that simply means "there is" or "there are". You use this exact same phrase whether you are talking about one bakery or five.

In English we usually say a bakery is "on" the street, so why does the French use dans (in)?

French speakers think of a street as a three-dimensional space enclosed by buildings on either side, so things are located "in" the street (dans la rue) rather than "on" a flat surface. This is a very common difference between English and French prepositions.

Why does the adjective petite come before the noun boulangerie?

Most French adjectives come right after the noun they describe. However, short, common adjectives that describe Beauty, Age, Goodness, or Size (often remembered by the acronym BAGS) go before the noun. Since petit describes size, it goes in front of boulangerie.

Why is it petite with an "e" at the end?