"We were not reading the new project."
Translation:Nie czytałyśmy nowego projektu.
What do you mean? It is impossible to know what options you were given.
But I can guess you may be asking about czytaliśmy vs czytałyśmy.
The difference is gender-
li-śmy, li-ście, li are masculine personal endings- for groups of people that include a male person,
ły-śmy, ły-ście, ły are not masculine personal endings- for groups of female people, and groups that do not include people (all not personal plural nouns)