How do we know the exact position of Earth in the galaxy?

I am not a scientist, so I hope my questions are not too trifling.
I have wondered for years just how anybody knows where the earth, or even our sun for that matter, is located in the Milky Way. Apparently, the earth is located in an outer spiral arm some distance (many light years) from the centre. And, being as we do not live in a 2-D universe we must be some distance from the top or the bottom of our immediate part of the universe (or spiral arm).
Based on the my belief that even the Hubble telescope is, comparatively speaking, not very high, my question is why is everybody so sure about where we are. And is there some sort of orientation consideration involved?