"What is it?"
I think これ is for something that's close to you (Imagine yourself holding something really weird, or just being close to it and saying 「これは何ですか？」)
それ is for something that is far from you, but close to whom you're talking to (as in: "what's that next to you?")
and あれ is something that's far from both of you or the default way of saying "what is it?" (the default part is just assumption tho)
correct me if I'm wrong, I'm just a beginner ^^
You are expected at this stage to be able to read the hiraganaそれは, understand the audio, and click on the words that make up the question to help you deduce the correct answer.
I suspect it is also part of the monetisation i.e. if you are a free user, then getting an answer wrong reduces a health.
You are correct on both counts. "A-Re" means "that (over there) and they must've changed the question/answer as there is no mention of So-Re or A-Re now, but several mentions in the comments. I have read another comment that in some situations Ko/So/A-Re may be translated as "it" however you're best to stick with translating them as "this/that."