"Nein, er ist klein."
Translation:No, he is small.
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I think "short" should be accepted. The sentence doesn't specify so I would assume it refers to a person. My understanding is that "Nein, er ist klein," could mean "No, he is short." I believe when referring to a person this is preferred over "Nein, er ist kurz." (However I am only a German learner, so I might be wrong!)
The sounds blend together slightly with naturally-paced pronunciation. The slower pronunciations (if you have that option) make it clearer if you ever need to check. But your increasing knowledge of grammar will improve your listening comprehension too ('esst klein' doesn't really make a lot of sense).
er, sie, es can also refer to something that you mentioned before and that has masculine, feminine, or neuter grammatical gender, respectively.
Dies ist mein Löffel. Er ist klein. Dies ist meine Gabel. Sie ist spitz. Dies ist mein Messer. Es ist stumpf. "This is my spoon. It is small. This is my fork. It is pointy. This is my knife. It is blunt."