小城故事 == 小城的故事； so the story is depicting the story of the small town O(∩_∩)O哈哈~

A story happened in a small town .

小城 here refers to 台湾鹿港三义小镇 according to the research that I have done. However, as time changes a lot, you cannot really find the same things depicted in the song. If you would like to find out more, you will need to do more research and read some articles. Hope it helps.

Suppose it's a story about a small town. It perhaps equals to : "Once upon a time in a small town"

i think that the small town represents a place that local culture and customs.