Look at the verbs. Sie ISST = she eats. Sie ESSEN = they eat
Why is the first sie she and the second sie they?
It's easier to tell when is means she or they according to the verb, essen or isst.
the first sie is she and the second is they I thought that they were both she
You can tell they're different because of the forms of the verbs. In this case, they're even the same verb! This should alert you to something being different :)
why cannot the first 'Sie' mean 'they' ?
"isst" is singular, so that means that the first "Sie" has to be singular, so therefore it can only mean "she"