Mislim da je ovo najbolji restoran u gradu.

Because Serbian verbs usually show the subject by their ending.

• mislim = I think
• The ending -m already tells you the subject is I

So Serbian often drops subject pronouns when they are clear from the verb. You could say Ja mislim, but that usually adds emphasis, like I think.

Here da means that.

So:

• Mislim = I think
• da je ovo najbolji restoran u gradu = that this is the best restaurant in town / in the city

In Serbian, da is very commonly used to introduce a clause after verbs like think, know, say, hope, and so on.

Because je is a clitic, and clitics in Serbian usually go in the second position of their clause.

In the clause:

• da je ovo najbolji restoran u gradu

the word je cannot just stay wherever English is would go. Serbian places it very early, after the clause-introducing word da.

So da je ovo... is natural, while da ovo je... is not.

This is one of the most important word-order patterns in Serbian.

This is a very common question.

• ovaj restoran means this restaurant when this directly modifies the noun
• ovo je restoran means this is a restaurant when this stands on its own

In identification sentences like this, Serbian very often uses the neuter form ovo:

• Ovo je moj brat.
• Ovo je dobra knjiga.
• Ovo je najbolji restoran u gradu.

So here ovo does not have to match restoran the way an adjective would. It works more like this thing / this place / this one.

najbolji is the superlative form of dobar = good.

The pattern is:

• dobar = good
• bolji = better
• najbolji = best

Since it describes restoran, it must agree with restoran in gender, number, and case:

• restoran is masculine singular nominative
• so the adjective is najbolji

It is in the nominative singular.

That is because after je in a sentence like this, Serbian normally uses the noun in the nominative:

• Ovo je restoran
• On je doktor
• Ona je profesorka

So najbolji restoran is the predicate noun phrase, and it stays in the nominative.

Because u can take different cases depending on meaning.

• u + accusative usually shows movement into somewhere
• u + locative usually shows location in somewhere

Here there is no movement. The meaning is location:

• u gradu = in the city / in town

Compare:

• Idem u grad. = I am going to town.
• Ja sam u gradu. = I am in town.

So gradu is the locative singular form of grad.

It can mean either, depending on context.

In English, we often say:

• the best restaurant in town
• the best restaurant in the city

Serbian u gradu can cover both ideas. The exact English translation depends on the situation and on what sounds most natural in English.

This is a very natural, neutral word order.

• Mislim da je ovo najbolji restoran u gradu.

You can change word order in Serbian, but not freely in every part of the sentence. For example, je still has to follow clitic-placement rules.

Possible alternatives can shift emphasis, for example:

• Mislim da je najbolji restoran u gradu ovo.
  This is much less neutral and sounds strongly contrastive, like I think the best restaurant in town is this one.

So the original sentence is the normal choice for everyday use.

Yes, you could.

• Mislim da je ovo najbolji restoran u gradu = neutral, natural
• Ja mislim da je ovo najbolji restoran u gradu = adds emphasis to I

Using ja is not wrong, but Serbian often leaves pronouns out unless they are needed for contrast, emphasis, or clarity.

A natural way is:

• Ovo je najbolji restoran u ovom gradu.

Here ovom means this and agrees with gradu:

• grad = city
• u gradu = in the city
• u ovom gradu = in this city

So the original u gradu is more general, while u ovom gradu is more specific.