I do a search on wikipedia for town/village names for the area that roughly corresponds with the region I'm working on (France, Germany, Switzerland, whatever).  I pull a list.  Then I go through and either combine bits and pieces or swap out letters.  I try to keep things authentic feeling but pronounceable.  Yes, this produces a bunch of nonsense names, but I'm happy to retweak if they run afoul of my players' sensibilities.  If I have an idea for a geographical name (Three Forks, for instance, or Earth Fall), I'll plug them into Google Translate and play around a bit until I get something I like.

So for example, some of the locations I've added to my map for the French region of my game world are:
Lillebay
Port d'Treux
Goulet
The Mioré (a vast, magical wetland)
The Neverfen (a coastal delta), fed by the Nevers River

I'll spare you all the little river names I've added to the map.

To make areas sound culturally distinct, come up with a number of words that can be attached to places as pronouns or suffixes, or refer to general features.  If you decide that 'krag' is the Dwarven word for mountain, it makes sense than several Dwarven citadels will include it; Durnkrag, Helmcrag, etc.  Words for ports, towns, rivers, forests make sense.  Then as the culture dominating changes, some of those names will be rendered into the local language.  New people might give it a new name that represent who lives there (Elf Wood).  It's okay to have the culturally dominant group names appear as standard compound words.

As many places are named for people as for geographical features (or a geographical feature that was named after a person).  Finding out what common names are in the region helps generate names for places.  If Ash is a name, than Ashford, Ashbridge, Ashton, and Ashesville are all plausible names of a place that someone with that name was important to.  Not every town includes a suffix; the town could just be Ash.  If there's a statue dedicated to the founder (like Jebediah Springfield) all the better.  

Towns will often refer to a commercial feature (mill, bridge, ford, smithy); in the hinterlands they may be built up around a fort and take that name.  

Compound names in a foreign language will still usually make sense if you're generally consistent.  Terms like 'greenveld' might not be common in English, but people will have a sense of what a veld is if you apply it to grasslands and not mountains.  

Considering how many people have invested in learning fantasy languages (like Klingon, and Valerian), I'm leaning toward using real-world languages in the future.  I'd rather a player that was really interested in the world learn Czech than Valerian.