Translation:My sister was saying that you are too old for her.
Hopefully someone more fluent can chime in here, but I think "My sister said" is an importantly worse translation of "disait" than "My sister was saying." Disait is the imparfait, which is used for past, continuous actions. "My sister said" is a completed past action, and would be better translated in the passé composé: "Ma soeur a dit."
Here's a list of categories of times to use imparfait, though the fourth in particular is pretty vague: http://french.about.com/od/grammar/a/imperfect.htm
Using imparfait here implies that it was something she said habitually/repeatedly, or that it's background information. Imparfait vs. passé composé is a matter of nuance, which is hard to teach in Duo's decontextualized environment.
On Tim DeMay's comment: In this sentence, "my sister said" can be translated in either passé composé or in imparfait. If the meaning is that my sister made the statement (once) then "Ma soeur a dit" would be right. But if the meaning is that "my sister (always) said" then "Ma soeur disait" is right.
Actually, it is correct grammar to say "My sister said that you are too old for her." It is ALSO correct to say "My sister said that you were too old for her." It depends on the meaning as S0R0USH explains above. Reported statements are never necessarily in any case. In fact, they are most correctly reported in the present because it was present when it was said.
TimDeMay is correct; just like in Spanish, there are two different past tenses. The imparfait is used for saying things like "I used to be young" and "I was eating at that time." The passé composé is used for phrases such as "I walked to the store" and "He was far too old." Hope this helps!
I agree with Elisa, that's a good question. I can understand why some would argue that "My sister said..." should not be acceptable, since she might have said it one time and the passe compose should be used. But if you were translating the English sentence "My sister used to say..." into French, you would get the original Duo sentence, using the imparfait.
i think if this sentence is expressing some action which repeats more than one time, it would be to add an adverb, showing how often this action was happening in the past - "ma sœur disait (souvent, parfois, rarement etc) que tu es trop vieux pour elle". otherwise it can be interpreted as a finished action and it will look like that "ma sœur a dit que tu es trop vieux pour elle". Moreover this sentence is grammatically incorrect because the speech indirect must be conjugated in the correct tense. in this case a sentence will "ma sœur disait (souvent, parfois, rarement etc) que tu était trop vieux pour elle" or "ma sœur a dit que tu as été trop vieux pour elle".
The rules for imparfait vs. passé composé can be confusing for an English speaker, as we have one past tense. However, if put in context, this sentence could be grammatically correct (Quand je suis arrivé, ma soeur disait que...). This might help: https://languagecenter.cla.umn.edu/lc/FrenchSite1022/VERBpcvsimp.html
In terms of trainslation I think the topics has been discussed sufficiently. BUT: The French sentence is incorrect in the first place since "disait" doesn't match its "concordance de temps" in "tu es", there's no way in French that reported speech can sample présent if the main sentence is in imparfait.