Therefore, the only thing y can be exactly located at is itself

This says that exact locations are exactly located only at themselves (hence that ‘chains’ of exact location are always ‘short’). To see why this follows from Functionality and Conditional Reflexivity, suppose that x is exactly located at y. Then by Conditional Reflexivity, y is exactly located at y. If y is also exactly located at z, then by Functionality, y=z.