Translating "lesen" does not require the present progressive tense ("are reading"). "Our cats read the newspapers" should also be a correct answer.
"the newspapers" (i.e. some specific newspapers) would be die Zeitungen, but that's not what the German sentence says.
"Our cats read newspapers" (without "the") should be accepted.
No - it's just a slightly silly sentence to practise vocabulary and grammar.
Come on, Duolingo! you can do better... The sentences should be more pragmatic and align with real interactions.