I looked at it as "They walk down there.", which we commonly say in english.
I looked at it as "They walk below" and was marked wrong. I tried correcting it to "They walk there below" and it too was marked incorrect. "Down there" certainly is less awkward and I'm happy to see that version is an accepted translation.
There isn't one. As far as I know the only time you can tell the difference is when there's a liaison. Such as in Il écoute and Ils écoutent.
Hence why Ils marchent la-bas and Il marche la-bas are both correct.