Learn Italian: La collana è bella. Dove l'hai comprata? - The necklace is beautiful. Where did you buy it?

Yes, normally verbs using avere keep the -o ending. But when a direct object pronoun like la (shortened here to l') comes before the verb, the past participle comprata must change its ending to match the pronoun's gender and number (feminine singular).

What exactly does the l' stand for in this sentence?

The l' stands for la, meaning "it" and referring back to the feminine noun la collana. When the pronouns lo or la come before a form of avere that starts with an h (like hai), they drop their vowel and become l'.

If l' can stand for either lo or la, how do we know which one it is here?

You can tell by looking at the end of the past participle! Because it is comprata ending with an -a, we know the shortened pronoun must be the feminine la. If it were the masculine lo, the sentence would end with comprato.

Could I just say Dove hai comprato la collana? instead?