Y replaces a place you've just mentioned — usually one introduced by à, au, en, dans or chez. Like the other object pronouns, it goes before the verb, and je shrinks to j' in front of it:

• Tu vas au marché ? — Oui, j'y vais. — Yes, I'm going (there).
• Luana habite à Paris ? — Oui, elle y habite. — Yes, she lives there.
• Tu es chez toi ? — Non, je n'y suis pas. — No, I'm not (there).

English often leaves there out — Yes, I'm going — but French needs the y: never just ~~je vais~~. (aller — to go: je vais, tu vas, il / on va, nous allons)

You already know one y: it's the same one as in il y a. And the most famous of all: On y va ! — Let's go!