"They read that book."
Translation:वे वह किताब पढ़ते हैं।
At least in the Hyderabadi Hindi that I'm used to, वह किताब would become उस किताब with an optional को—I've never heard my northie friends used वे वह... either, so I can't be the only one who finds this sentence strange.
Hindi varies greatly depending upon the area where it's spoken. The sentence might seem weird but it's the most sensible sentence when trying to teach common Hindi acceptable everywhere.
"वे वह किताब पढ़ते हैं।" sounds weird.
'They read that book.' sounds better translation for "वे उस किताब को पढ़ते हैं।". The reason is: the book is being referred or pointed to by the demonstrative that/उस and thus it becomes the definite direct object of the verb 'read'/पढ़ना, and takes the postposition को .
यह and वह both are stand alone third person singular pronouns. यह, meaning he/she/ it, is used for s.o./sth. close and वह with the same meaning is used for s.o./sth. distant or absent.
Hindi translation for 'That book is read by them.', which is in passive voice, is वह किताब उनके द्वारा पढ़ी जाती है।.
They read that book -> वे वह किताब पढ़ते हैं। (We wo kitaab padhte hain)
That book is read by them. -> वे उस किताब को पढ़ते हैं। (we uss kitaab ko padhte hain)
No, that's not how the passive is formed in Hindi. If you want to say 'that book is read by them', you'd say किताब उसके द्वारा पढ़ी जाती है. The two Hindi sentences you have given both mean the same thing.