The song refers to the massive desertic plateau “Sprengisandur”, located roughly in the centre of the country, which was crossed since the Middle Ages by a road (commonly indicated simply as “the sand”) that traversed the whole island south to north, crossing the desert mainland, instead of keeping to the inhabited coastline.
The road was roamed by outlaws and was believed to be haunted by ghosts, spirits, and creatures of myth of all kinds. Travelling on it was considered an extremely dangerous ordeal.

Find here the track of the modern road across the Sprengisandur.