I understand in English its common to put the question first but it's not uncommon to phrase it as "An is who" either. Its typically phrased with the subject first when you're looking for "An," without knowing who "An" is. So I don't understand why "An is who" is incorrect unless it's just how duolingo programmed the app.
Please bear with me on this one because I know it's not the best explanation =( When you say "An", it is short and to the point. The back of your tongue (not necessarily the back-back but further back) touches the roof of your mouth naturally to make a "n" sound. When you say "anh", your tip of your tongue touches the roof of your mouth. As if to muffle the sound. The acoustics is so subtle, but you can hear the difference. Unfortunately, the best way to hear the difference is if you hear both words side by side. Maybe the DL team could make a sentence like "Anh ấy là bạn của An" for practice? I know it's hard to learn a tonal language, but practice makes perfect!
I did the same, but let me point "Anh" is not "he". It can be "I" or "you", depending on the age of the speakers (Anh is someone a little older).
Anh ấy I'd "he", when this third person is a bit older. If it is a bit younger is "em ấy".
Generally, adding"ấy" behind a pronoun, transforms it into a third person, without that particle, a pronoun is "I" or "you", depending on the relative age of the speakers.