Learn Hardcore Malay: Dalam bab pertama novel itu, watak itu masih tinggal di kampung. - In the first chapter of that novel, that character still lives in the village.

Both sound natural. Dalam is slightly more common when talking about sections of a text (in the chapter, in the section), but the difference is subtle and not about grammar here.

Why is it bab pertama, not bab satu or bab yang pertama?

All of these can appear in Malay, but they’re not identical in feel:

bab pertama – the first chapter (most natural, standard way)
bab satu – literally chapter one (more like a label or title; often seen in headings, contents pages)
bab yang pertama – also the first chapter, but with yang adding a bit of emphasis or formality; fine, but not needed here

In normal narrative sentences, bab pertama is the smoothest and most common choice.

What does itu add in novel itu and watak itu? Is it “that” or “the”?

Itu literally means that, but very often it works like the indicating that the thing is:

specific/known
already introduced in the context
or obvious to both speaker and listener

So:

novel itu = that novel / the novel (we already know which one)
watak itu = that character / the character (already mentioned earlier)

Without itu:

novel could mean a novel (general, non-specific)
watak could mean a character (non-specific)

Malay doesn’t have articles like a / the, so itu (and ini) often do that job of showing definiteness.

What exactly does watak mean? Is it the same as character in English?

Watak in this context means a character in a story / novel / film—yes, like character in English when you talk about fictional people.

It can also mean personality / character (traits) in some contexts, but for literary / story characters, watak is the usual word.

Other related words:

karakter – also used, especially in modern or translated texts, but watak is more natively Malay.
perwatakan – usually means personality, character traits, more abstract.

In your sentence, watak itu = that character (in the novel).

Why is masih used, and where should it go in the sentence?

Masih means still (continuing from before, not yet changed).

watak itu masih tinggal di kampung
= the character still lives in the village

Position: masih comes before the verb/adjective it modifies, similar to English still:

masih tinggal – still lives / is still staying
masih muda – still young
masih bekerja – still working

If you remove masih:

watak itu tinggal di kampung = the character lives in the village
You lose the idea that this situation hasn’t changed yet.

What does tinggal mean here? Is it “to live” or “to stay”?

Tinggal can mean both to live (reside) and to stay / remain, depending on context.

In your sentence, tinggal = to live (reside):

watak itu masih tinggal di kampung
= the character still lives in the village

Other uses:

Saya tinggal di Kuala Lumpur. – I live in Kuala Lumpur.
Tinggal di sini sementara. – (I’m) staying here temporarily.
Hanya dua orang yang tinggal. – Only two people remain.

You would not use hidup here; hidup means to be alive / to live (as in not dead), not to reside.

Why is it di kampung without any word for “a” or “the”?

Malay doesn’t use articles like a / an / the, so di kampung can mean:

in a village
in the village
in the countryside (in a general sense, depending on context)

If you want to be more specific, you can add detail:

di sebuah kampung – in a (certain) village (indefinite, but countable)
di kampung itu – in that village / in the village (we already know which)
di kampungnya – in his/her village
di kampung saya – in my village

In your sentence, di kampung is understood as in the village (where they are from) or in a village, based on the surrounding story context.

Can I change the word order, like put the time/position phrase at the end?

Yes, you can, and Malay word order is quite flexible.

Original:

Dalam bab pertama novel itu, watak itu masih tinggal di kampung.
In the first chapter of the novel, the character still lives in the village.

You could also say:

Watak itu masih tinggal di kampung dalam bab pertama novel itu.

Both are grammatical. The difference is about emphasis:

Fronted: Dalam bab pertama novel itu, …
→ Highlighting the first chapter as the setting.
End-position: … di kampung dalam bab pertama novel itu.
→ Starts with the character, adds chapter information later; feels a bit heavier but still fine.

The original order is smoother and more typical in written narrative.

How do we know the tense? Does this mean “still lived” or “still lives”?

Malay verbs don’t change form for tense. Tinggal stays the same whether it’s past, present, or future. The tense is understood from context.

Your sentence could be translated as:

In the first chapter of the novel, the character still lives in the village.
In the first chapter of the novel, the character still lived in the village.

Which one is right depends on how the surrounding story is told in English.

If you really want to mark past more clearly, you might add time markers like:

Pada masa itu, watak itu masih tinggal di kampung.
– At that time, the character still lived in the village.

Is this sentence formal, informal, or neutral?

The sentence is neutral and standard. It would be natural in:

school essays
literary analysis
book reviews
general narrative writing

Spoken casual Malay might shorten or rephrase it, but as is, it’s good standard Malay—neither very formal nor slangy.