Using the first person verb conjugation to describe the actions of someone else?
I was reading a book on German verbs, and it gave me the example "Sie sagt, sie rieche nichts." I'm a little confused here, why is the verb riechen in the form rieche for a third person? Any help?
That's the Konjunktiv I. It's used for reported speech.
This is "Konjuktiv 1" It is used to describe actions that you have not personally witnessed. You will find it used frequently in news articles, but you probably don't need to learn how to use it yourself until you are more advanced and are polishing up the details of your German.
The biggest exception, perhaps, is that you have to know it in order to give commands to Sie.
Fortunately, though, the Sie form of Konjunktiv I is identical to that of the indicative -- the only exception I can think of is with sein where you have Indikativ Sie sind but Konjunktiv I Sie seien. Thus commands will be e.g. Seien Sie still! and not *Sind Sie still!.