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原句是：
In towns that are near the sea, the tiny lanterns which had been hung in the streets the night before, are placed into the water when the festival is over.

In towns （that are near the sea） 在这里就是地点状语，在靠近海的小镇。整句原文的主语是the tiny lanterns，后面的which是修饰lanterns的宾语从句，整句话简化下来就是the lanterns are placed into the water.

这里的that are near the sea是修饰towns定语从句，that在从句里做主语，

that在定语从句中作主语时，不可省略。

【例如】
The teacher that is kind to us goes back home very late every day。
对我们很好的那个老师，每天都很晚才回家。
这里的that is 也不可以省略。

请参看以下链接，讲解定语从句关系词可以省略的情况：
[url]https://www.hjenglish.com/new/p37937/[/url]