Translation:They are drinking tea and she is drinking coffee.
Why is sie (meaning "her"), not capitalized?
Er, because it isn't.
We don't capitalise (most) pronouns in German -- like in English. We write sie singt and er singt like "she sings" and "he sings"; we don't write Sie singt any more than we would write "She sings" in the middle of an English sentence.
The first letter of a sentence is capitalised (again, as in English). But not pronouns.
(The exceptions being "I" in English and the polite Sie that means "you" in German.)