Why is Ustedes not considered to mean they? I know it means You all, but it seems like it would work.
Because it means "you all." :) It "works" in "ustedes tienen libros," which means "you all have books," but Ustedes and ellos are as different as, well, you and they!
Because when you say "you"/"you all" that "you"/"you all" is listening to you. When you say "they" you are not talking to them but about them.
I thought tengo is have
Tengo is "I have" - tienen is used for "They have"