Good question. I'd say because of the context, but I would appreciate someone to clarify.
It could be either. There are only two third-person singular pronouns in Welsh:
hi = "she" or "it (feminine)"
(f)e/(f)o = "he" or "it (masculine)"
Context usually clears it up.
I got the translation "It has better today" for this sentence. (As correction after i typed it wrong) - It sounds kind of strange. Is it used somewhere this way? (Would have expected: " It is better today".)
That is an error in the central Duo system - the course team has no control over it. It seems to generalise incorrectly from "it's been = it has been" to "it's' = 'it has".
I have just changed the preferred answer here from "It's better..." to "It is better..." - that might nudge Duo in the right direction.
I think it's a coincidence. Welsh well is a mutation of gwell, and the letters are pronounced quite differently than those in English---especially the ll but also the e which comes out long in the pronunciation at https://forvo.com/word/cy/gwell/
I took a look in the Geiriadur Prifysgol Cymru, where the entry for gwell (which I can't seem to link to directly) does not have the magic "bnth. S." for "benthyg Saesneg" (borrowed from English). You can compare gwell's entry with those for siop, bacwn, ... http://welsh-dictionary.ac.uk/gpc/gpc.html
"Wel" does exist in Welsh, and its generally used similarly to how "well" is used to start/conjoin sentences in English. At least from what Welsh I hear from music and videos etc.