"í fjallsHlíðinni" is: on the slope of the mountain.
"Hlið"(side) of "hæð"(hill) or of "fjalli"(mountain) we name
Hlíð. Where in inclation points to vertical: we begin to use term
as Hamar, Klettur, Klif,....
"Grjót", "urð", "möl", sandur,... is like sugar.
As "Grjót" is relatively the biggest or comparable somtimes to small
rock or stone it takes singular also.
"Byggja á" can refer to two things: it can refer to the soil(floor)
Or the main material that is used in the building it self.
See "Build on".
One can broke "Grjót" (Brjót) out of "Kletti" Rock:
But we do not say "Grjót" are/is "Klettur" but "Grjót" are/ Stone/s"