ihr is a rather annoying little word - it turns up in a few different places, but there are ways to tell it apart quite clearly. Don't get confused!
It can be a (2nd-person) personal pronoun:
That's what it is here. It means "you (all)", and is the way to talk to a group of people you are on informal terms with. You can tell that it has this meaning, because it will conjugate with a usually-unique form of the verb: here it is ihr lest (as opposed to, for example, er liest or sie lesen). Like the other personal pronouns, it changes with case. It is only ihr in nominative case, i.e. when it is the subject, so that makes the trick of identifying the verb conjugation quite a good one. In the other cases it becomes euch.
It can be a (3rd-person) personal pronoun:
That might have been what you got it confused with. It means "her" in dative case only. Personal pronouns in dative case do not conjugate with the verb, because they're not the subject. Note that this is distinct from "she", which is nominative case (sie). See the table linked to earlier if you need a reminder of how it all fits together.
It can be a possessive determiner:
This is maybe the most ambiguous function of it. Possessive determiners come in front of a noun and are used to say who the noun belongs to. Words like "his" and "their" are possessive determiners. Don't be caught out by the fact that English recycles words sometimes too! "Her" is both a personal pronoun and a possessive determiner ("that is her apple"). Be aware that this is basically just a coincidence - the male equivalent uses different words ("that is his apple", not 'him apple'). The other confusing thing about it is that, like sie/Sie can mean either "she", "they" or "you (formal)" - ihr can mean "her [apple]", "their [apple]" or "your [apple] (formal)" if it's capitalised (Ihr). But in each of these usages, you will know that it's being used to show possession because a noun will come after it and for many combinations of gender and case there will even be an ending on it (das ist ihre Zeitung).
Does it conjugate the verb? - it means "you (all)"
Does it have a noun after it? - it shows possession
None of the above? - it means "her" in dative case