how do i know sie means 'them' and not 'her' in this case?
You don't - both "them" and "her" are possible translations here.
and also it have to be in context.
The word sie is used for both her and she. Which is different than the others such as Er = he and ihn = him
Why is "I see her in the restaurant" incorrect?
I think that is accepted now
could someone please explain why this sentence works? "I see she in the restaurant" doesn't work in English. Why can it be said in German?
In English, the declensions are different; "she" is nominative, and "her" is accusative AND dative AND genitive. In German, „sie“ is nominative AND accusative, but „ihr“ is dative and „ihrer“ is genitive.
In the restaurant is perfectly acceptable for this I think. Despite somebody saying it had been corrected 4 months ago, it hasn't been.