In the sentence below, does "Bakersfield, California" correctly refer
to the town or the baker?

"His mother knew a baker in our town, Bakersfield, California, who
baked the cookies for us"

If Mr Jones is the baker which sentence below is correct and why (cite
the rules that apply). The first sentence sounds better.

"His mother knew a baker in our town, Mr. Jones, who baked the cookies for us"

"His mother knew a baker, Mr. Jones, in our town who baked the cookies for us"

Hi zero_down,

In the first sentence, "Bakersfield, California" refers to the town,
not the baker, but this is a semantic conclusion, not a grammatical
one.  That is, that is the interpretation that makes sense, based on
the independent knowledge that Bakersfield is a town and not a person.
 Interpreting the sentence as meaning that "Bakersfield, California"
refers to the baker would be strange, but not ungrammatical.

Both the second and third sentences are correct.  A noun phrase that
follows another noun phrase and describes the same thing is called an
appositive.  In these cases, "a baker" is a noun phrase and "a baker
in our town" is also a noun phrase, which happens to contain the first
noun phrase.  So the appositive "Mr. Jones" can follow either noun
phrase.  I agree that the first sentence sounds better, but that is
not because the second sentence is ungrammatical.

Because a noun phrase can contain a noun phrase, as in these examples,
apposition can be ambiguous.  For example, in the phrase "The mother
of the speaker, Carolyn," "Carolyn" could be interpreted as an
appositive to either "the speaker" or "the mother of the speaker."


Additional Links

Page on the appositive from the Grammar Bytes! website
http://www.chompchomp.com/terms/appositive.htm

Wikipedia on appositive
http://en.wikipedia.org/wiki/Appositive


I hope this is a satisfactory answer to your question.

--efn

This reminds me of an old joke:

My friend told me that he knew a man with a wooden leg named Smith. 
"So," I said, "What was the name of the other leg?"

Using parentheses might help if there is confusion.