Translation:Her older brother is a fifth grader.
Glad I could help.
It can be quite challenging to parse an unfamiliar sentence in Japanese due to the lack of spaces between words. Kanji can help by providing some natural boundries, but there are many words that are commonly written in hiragana only, especially if they are serving a grammatical function or being used as an auxillary word or prefix/suffix to a main word. And there are many homophones or words with diverse meanings or uses. So it can get pretty messy.
The difference is vast, actually. 彼女（かのじょ）is the correct word to use here. And I don't even know if 「かのじょう」is a real word in Japanese. (My IME doesn't recognize it, which isn't a good sign.)
The difference in pronunciation, by the way, is that the "o" vowel is extended by the う following it.
They're not the "same thing," exactly, but you are correct in that the kanji 兄 is read as にい in this context. It's possible, however, that Duolingo found a different error in your translation, and the little underline marker was just misplaced.
If you're sure that the only "error" is with the kanji, go ahead and report it.
I'm not entirely sure what you're asking. I suppose the sentences are "okay," but they're not proper translations of "her older brother is a 5th grader," if that's what you mean.
So let me break your sentences down here: 彼女の - "That girl's..." (roughly) 姉妹 - "sister(s)" 兄弟 - "brother(s)" は - Topic/subject particle, properly used in both sentences. 高校生 - "high school student(s)" です - Verb "to be."
So (I think) your sentences would roughly translate to: "Her sister is a high school student." "Her brother is a high school student." If that's what you wanted to convey, then you did perfectly fine.
(If someone who's better at Japanese than I am has more insight, I'd love to hear it.)
あに is only for your own older brother when talking about him to someone else. It's humble language. You don't want to be seen as putting your own family on a pedestal or anything.
おにいさん is the general polite term for "older brother." You'd use it when talking about someone else's older brother or for when talking directly to your own older brother. (You can also use it just as a general term for a relatively young, older male stranger that you don't know, like on the street or something. So like instead of saying, "Hey you" or "That guy" or something, you could refer to the person as おにいさん instead.)