They are not the same word, in fact. The two words are Sie, and sie. The word Sie is "you" and the word sie is "she". No difference? Look for the capital letter there. "You/ Sie" has a capital letter, while "sie" does not. In speech, the only difference is context. "Sie essen" opposed to "sie isst." The context.
Not necessarily. 'Sie trinken' can either mean 'they drink' (which is plural) or 'you drink' (formal you which is singular).
When asking questions, such as "Do you drink wine?", the verb comes first. "Trinkst du Wein?"
So the answer can be 'they' -which is what duo wants. 'She' but only in the formal sense, which you dont know the context because you have 1 sentence. But really would or should be 'sie' or 'Sie' except its the first word. So you literally guessing, cool. Thanks thats makes it much clearer.