より is probably acting as a mark of comparison. There is the water level, and then above and beyond that is the water. The island MUST stay above the water level no matter what.
And yes, 上 means above, on (top of), upon. There are some words like 真上, which seems to have a bit more of an "above" meaning (suspended from the ceiling, on a different floor/level) than an "on" meaning.
To be on a wall, I'd probably say 時計は黒板の真上に壁にかけています - The clock is (hanging) on the wall above the blackboard.