Papir je u torbi na stolu.

Je is the 3rd person singular form of biti (to be), so here it means is.

So:

• Papir = paper
• je = is
• u torbi na stolu = in the bag on the table

In Serbian, this verb is normally used in simple sentences like this to say where something is.

Because after u meaning in for a location, Serbian uses the locative case.

The noun torba changes like this:

• torba = bag, base form
• u torbi = in the bag

So torbi is the locative singular form of torba.

This is a very common pattern with many feminine nouns ending in -a:

• škola → u školi
• soba → u sobi
• torba → u torbi

For the same reason: na can also take the locative case when it describes a location.

• sto = table
• na stolu = on the table

So:

• na stolu = on the table
• na sto = onto the table

This is an important Serbian pattern:

• location → locative
• movement toward a place → accusative

Compare:

• Papir je na stolu. = The paper is on the table.
• Stavljam papir na sto. = I am putting the paper onto the table.

In this sentence:

• u means in / inside
• na means on / on top of

So:

• u torbi = in the bag
• na stolu = on the table

Serbian uses both of these prepositions very often, and both can mean either:

1. location

   • u torbi = in the bag
   • na stolu = on the table

2. movement toward a place

   • u torbu = into the bag
   • na sto = onto the table

Because Serbian has no articles.

English says:

• the paper
• a bag
• the table

Serbian simply says:

• papir
• torba / torbi
• sto / stolu

Whether something means a or the is usually understood from context.

So Papir je u torbi na stolu could be understood as something like:

• The paper is in the bag on the table
• or, depending on context, A paper is in a bag on a table

In practice, context tells you which meaning is intended.

The subject is papir.

It is in the nominative case, which is the normal case for the subject of a sentence.

So the structure is:

• Papir = subject
• je = verb
• u torbi na stolu = location phrase

That is why it stays papir, not papira or some other form.

Yes, it can be a little ambiguous, especially for a learner.

The most natural reading is:

• the paper is in the bag
• the bag is on the table

So na stolu most naturally describes torbi.

But depending on context, a listener could briefly wonder how the phrase is being grouped.

If you want to make it clearer, Serbian can be more explicit:

• Papir je u torbi koja je na stolu. = The paper is in the bag that is on the table.

That removes the ambiguity.

Yes, Serbian word order is more flexible than English word order.

The neutral order here is:

• Papir je u torbi na stolu.

But other orders are possible for emphasis, for example:

• U torbi na stolu je papir.
  This puts more focus on the location.

One important thing to know is that je is a clitic, and clitics usually prefer the second position in the sentence or clause.

So even when word order changes, je often stays near the beginning in that second-position slot.

You would change the case after the prepositions to show movement rather than location.

Compare:

• u torbi = in the bag
• u torbu = into the bag

And:

• na stolu = on the table
• na sto = onto the table

So for example:

• Stavljam papir u torbu na stolu. = I am putting the paper into the bag on the table.

Here u torbu shows movement into the bag, while na stolu still shows the table as a location.

Because sto is changing into the locative singular form.

With many masculine nouns, the locative singular often ends in -u:

• grad → u gradu
• park → u parku
• sto → na stolu

So stolu is not a separate word you have to memorize by itself; it is the locative form of sto.

Good question. In many nouns, the dative and locative singular have the same form.

So stolu can be both:

• dative singular
• locative singular

But in this sentence, it is clearly locative, because it follows na in a location meaning:

• na stolu = on the table

So even if the form is the same, the function here is locative.