An "island space" is any space on the board that has an island printed on it. It does not matter if there is an island tile on the space or not, it is still an "island space." It also doesn't matter if there was no island tile there (because you were playing with fewer than 4 players). They are still blocked for movement.
FAQ for one Certain Game
One of the interesting things about Anno 1503 is the prohibition against trading between players. This is one of the features that the designer included in the game. He felt that this game should be focused on exploration, resource management, and expansion. Since he is also the designer of Settlers of Catan, he wanted to envision a game that is different from Settlers, and which also captured the flavor of the original computer game Anno 1503. Since there is not trading between players in the computer game, he felt that it did not belong in the board game either. The result of all this is a unique game that, while it has some similarities to other Klaus Teuber designs, stands completely on its own.