The actual location of the city of Carcosa is difficult to determine, if, indeed, it has one single location at all. Carcosa is usually located on the shores of Lake Hali, or possibly Lake Demhe, sometimes described as lake-seas, and then only at certain times. These may be the ancient names for lakes that no longer exist in the same form.
The nebulosity of Carcosa, both in location and nature, is one of its defining themes.
In The Play
In the play we know of Carcosa as a ghost city, which may or may not exist completely on the surface of the alien planet on which the play is apparently set. There are twin suns that appear to orbit the planet (though, in theory, the planet must orbit the suns) and black stars blink out of a bright sky. Carcosa appears on the far shore of The Lake of Hali, across from the city wherein the play takes place.
On Another Planet
Given the alien nature of the suns and stars, it is usually assumed that Carcosa is not of this earth, and its association with the Hyades has led to many sources assuming that it is located there. It is often associated with the star Aldebaran.
Lin Carter has used Carcosa as the name of a planet, the site of the Immemorial City, furthering the confusion.
On Earth
Bierce's tale An Inhabitant of Carcosa places the ruins of the city on a planet from which the Hyades can be seen in the night sky above, clearly identifiable as such, implying this is Earth (or at least Earth as it once was). However, given that the Hyades is a name from Greek mythology, it seems likely that the city existed some time after the Classical period, or it is identified as such through some older name being translated.
Suggested real world locations include Arabia's Rub al-Khali region, and the Gobi desert. In addition, the name suggests a connection with Carcassonne in France. Philip Jose Farmer placed Khorkasa in Africa. Cold Case : Rona hints that it may be found in New Mexico, in the T'charcosa Badlands. In addition, the vagueness of city status for Hastur and Alar raises further questions of identity and location.
The Rest Of Your Life sets Carcosa in America as a sort of afterlife or spiritual trap.
Bearing a slight similarity in name, La Certosa is a small island in the Venetian Lagoon. Venice has a strong association with masquerade balls, and in autumn and winter it is prone to sea fog.
The Dreamlands?
Carcosa has much in common with the Dreamlands, the dream reflection of earth that draws unwitting people into its fantastic realm - one theory has it that Carcosa is one of earth's oldest dreams that's been stolen away from earth and exists somewhere in the void between the stars. The Dreamlands physics of an alien planet might better support the black stars of the play, or the images of Carcosa's spires rising high behind the moon.
This theory is being worked up for the Call of Cthulhu scenario I Asked of Death Beside Me, in an attempt to unite the various apparent contradictions into a feasible 'truth'.