What kind of difference? "Liest er?" or "Lest ihr?"?

Same here

Because that's not the correct word order for a (neutral) question in English.

Most verbs in English need "do-support" for questions and negative sentences, meaning that you have to add a helping verb "do" in order to create such sentences.

So to turn "He reads." into a question, it will become "Does he read?".

It is also possible to ask questions using statement word order and just indicating that they are a question by the tone or (in writing) by a question mark at the end, as in "He reads?".

But those are not neutral questions. I'm not sure what the proper grammatical name for them is, but I call them "surprise/confirmation" questions -- you would use that form of question when you hear something surprising and you want to confirm that you heard it correctly.

For example:

• What does Tom do when he visits you at the weekend?
• He sits on the couch and reads.
• He reads? But he never does that at home!

German does this similarly, so you could use statement word order with question intonation:

• Was macht Tom eigentlich immer, wenn er euch am Wochenende besucht?
• Er sitzt auf der Couch und liest.
• Er liest? Zu Hause macht er das nie!

But since the question you are asked to translate is not this "surprise/confirmation" type Er liest?, but instead a regular question Liest er?, you are expected to translate it into a regular question in English, not a "surprise/confirmation" question.

[ He Reads? · is a sentence in « declarative question » format vice the « Does he read? » prototypical polar interrogative format to which mizinamo refers. · https://www.thoughtco.com/what-is-a-declarative-question-1690372 ]

[ The · Liest er? · syntax remains the same for the declarative sentencce. · Er liest. · https://forum.duolingo.com/comment/107119/Er-liest · · mizinamo or other Duolingo Moderator or German linguist might assist with German declarative question and polar interrogative syntax, grammar, and composition ] https://www.thoughtco.com/declarative-sentence-grammar-1690420
http://www.ling.uni-potsdam.de/~kuegler/docs/kuegler_LIP21.pdf https://www.researchgate.net/publication/261799145_On_the_Intonation_of_German_Intonation_Questions_The_Role_of_the_Prenuclear_Region http://www.oxfordreference.com/view/10.1093/acref/9780199202720.001.0001/acref-9780199202720-e-2596 https://journals.linguisticsociety.org/proceedings/index.php/SALT/article/viewFile/2860/2600 ]

I am guessing I can use this order for any verb then. For example: Trinkt er? OR Isst er?

That's right. Such yes–no questions will have the verb at the beginning.

But can I also say: Was trinkt er?

Yes, you can. That's not a yes–no question but rather a WH question, and those have the verb in second place -- in this case, after the WH word was.

Are "Does he read?" and "Is he reading?" interchangeable?

In English, no -- they are not interchangeable.

i.e. do they translate the same or is there a difference?

They both translate to the same sentence in German. German does not make this distinction between present simple and present continuous tenses and has only a single present tense.

Because "Is he reads?" is not correct English.

No.

You would use the past tense in German, i.e. “Las er?” or, probably more commonly, “Hat er gelesen?”

A yes–no question in English starts with a verb.

Sometimes this is the main verb of the sentence, as with "to be"; sometimes it is a helping verb "to do" which has no meaning in this case but is simply grammatically required to form a correct question.

Using the word order of a statement but with a question mark is usually reserved for "surprise/confirmation" questions, where you are surprised about something that you heard and want to make sure that you understood it correctly.

So "He is reading??" would be a reaction to having heard that someone is reading but you have trouble believing it; while "Is he reading?" is the usual word order for a regular question.

Because a normal yes-no question starts with “do” or some other verb in Standard Written English: “Does he read?”.

Why "does he read?" is not accepted as a correct answer

It's one of the accepted answers.

Did you have a listening exercise, perhaps, rather than a translation exercise?

as far as German doesn't have a distinct difference in translation between "does he..." and "is he..."?

That's true.

Is there anyone from the staff? Do you actually read the comments?

No. Duolingo developers/programmers don't read the forums, as far as I know.

Volunteer course contributors, who create and maintain the sentences, sometimes do.

But it's not guaranteed -- we're not automatically alerted to new comments, and since we're all just volunteers doing this in our spare time (and we're only a couple who are sort of active), we may not see them.

If you want a guaranteed response, then a paid teacher might be better.

With Duolingo, responses by course contributors are on a best-effort basis.

Would there be a difference in "Is he reading?" and "he is reading?"?

Yes: only the first is considered grammatical standard written English on this course.

In the same tone, should "he's reading?" count?

Not on this course.

I suppose not, because that is not a question but an observation. "Liest er?" is clearly a question - note the question mark - and that is why the translation must also be a question: "Is he reading?".

"Does he read?" is already one of the accepted alternatives. Please read the other comments for what you can do if that answer was not accepted for you.

What is the difference between "she is reading" and "she reads" in german? Seems like it's all "sie liest"

That's right. (Standard) German does not make this distinction.

On the other hand, there are distinctions that German makes but English doesn't....

The grammars of the two languages are not identical, though they are similar.