Could it also be "When do they eat"?
No, as the Sie is capitalised, it is the polite form.
Sie - (formal) You
sie - they
Yes if you are listening to the audio only.
Why did it say I'm correct if I chose "sie" and not "Sie"?
Duolingo ignores punctuation and capitalization. You need to know on your own.
This is really bad. "wann essen sie?" teaches me incorrect German for Sie. This should not be happening.