For one thing, if you went to Buckingham Palace and asked "esto es real? (is this real)", one might think that you thought you were having a dream. Also, if you met a member of the Royal Family and asked them if they were real, I'm pretty sure they would not be impressed. They do sound the same, but there is a BIG difference. :)
However, real is an acceptable word for royal. Think of the football (fútbol, soccer, whatever) team Real Madrid. I feel like it's a context dependent thing. "Is this royal?" might be a super weird thing to say, but earlier there was a sentence about some elephants not having eyes, so in theory strangeness of a sentence translation does not make it incorrect on this site.
Be wary of Google Translate hey... It has the flaw that in languages like Spanish and German, where there are masculine and feminine words, it does not always account for feminine words. This is a minor translating mistake, but can cause serious offence to some people when you go overseas or wherever you meet them. Yeah, some people are a tad too sensitive and need to chill...
Yes, I've noticed that Google Translate is not always compatible with Duolingo translations; I've learned not to use it to help with lessons (also because if one uses it to do a lesson for them, then they're not really learning the lesson). However I do find it helpful for 1 or 2 word translations, where I find that it's usually correct.
As rmcgwn said it depends on whether or not the gender of what you're referring to is know - as it is not in this context it is the neutral gender form 'esto' rather than the masculine form 'este'.
Have a looking at the tips section when you open up the determiners section to help clarify this point.