Translation:I will have a party today.
It's きょう (with the elongated vowel at the end) As for why, um, the answer is "it just is". You know how every kanji has at least one pronunciation derived from Chinese pronunciation, and one pronunciation that came about as a result of native Japanese words layered onto Chinese characters? Well sometimes Japanese has a single word for a concept that they then proceed to layer onto a Chinese multi-character term. So it's not uncommon for two characters to have completely different pronunciations when stuck together than when taken on their own, and that's probably what happened here.
Depending on your IME it could vary, type Hira and convert.
On mozc IME I would type "paateli" (which will end up looking something like ぱあてぃ) then tab to the katakana. (Preceding l forces the small character i).
On Google 12 key for Android I'd input: ぱーていー and then select パーティー from the completion box.
What varies between input methods is whether you are supposed to directly input the dash or just double up the vowel; and whether you are expected to directly input a small vowel or if the dictionary will recognize it for you.
In English, its common to use the word "hold" in place of host, for event-type things. A few examples are, "the dance will be held in the auditorium" or "the school will hold the dance in the auditorium", and also "the school is holding the dance at 7:30." As a native speaker, its not something I would casually say the way duolingo is presenting it here. While it's grammatically correct to say "I'm holding a party", it sounds like an open invitation for a public event. I also almost never see it without details about the event following it, like when or where it will be held.
as far as I know, there is no verb form of party (makes sense, party is a borrowed word, that's why its in katakana).
祝う(いわう ) is "celebrate" (v.) but iirc this is more in the sense of like "congratulating someone on an accomplishment" and not general festivities for no particular occasion.