Translation:The seal, which lives on the Wadden Islands, belongs to this family of animals.
Since when are we using "leven" to mean "resides in" as opposed to "wonen"?
It is correct. "Wonen" only applies to humans and not to animals (except maybe pets).
The seal, that lives on the Wadden Islands, belongs to this family of animals.
I was marked wrong when use 'that' instead of 'which', but die can stand either as that and which, right?
Can someone explain to me?
The seal, that... is accepted.
I've tested your sentence in the system and it indicates me that it would have been accepted. Hence I have no idea why it was rejected.
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Interesting that they use the word zeehond, or sea dog for seal. I remember watching a pirate movie where a pirate called somebody a 'scurvy sea dog'. So the same concept may have been used in early modern English as well before the term was replaced by 'seal'. Or perhaps both terms were used around the same era but seal became more popular.
Apparently "seal" in reference to the marine mammal comes directly from old English and has a cognate in Middle Dutch (https://www.etymonline.com/word/seal), so it would seem it's probably English that is more conservative on this point. The etymology snippet for "zeehond" here seems to correspond to this.
Is "die op de waddeneilanden leeft" a restrictive or non-restrictive relative clause?
I would understand the English translation to mean that all members of the species "seal" live on the Wadden Islands. Of course in the Duoverse such semantically impossible things are known to occur with a certain regularity :)
"Seal" is a group of species, not a singular species. So it's possible that all members of this particular species of seal live in the Wadden Islands.
The conventional rules of English punctuation actually prohibit that interpretation. In grammatical terms, you're claiming the part of the sentence about living in the Wadden Islands is a restrictive relative clause (i.e. one that defines what sort of seal is being referenced, as opposed to just providing incidental additional information), but those are not supposed to be set off with commas in English.
Of course, it's not actually necessary for this sort of interpretation that all members of this species live on the Wadden Islands. What's necessary is that there only be one species of seal that lives on the Wadden Islands.
As it is, it appears there are at least two species of seal that live in the Wadden Islands: https://terschelling.org/en/seals-spotting.php so references to real world realities aren't going to resolve the meaning of this sentence.
I suspect you're right in general that this is intended as a restrictive relative clause, but then the English sentence should be fixed: the commas deleted and ideally "that" substituted as the relative pronoun.