Some examples to clarify: :-)
Bettenzimmer - hospital room with beds for patients, not the single rooms,
Schlafzimmer - normal bedroom,
Elternschlafzimmer - master bedroom,
Gaestezimmer - bedroom for guests,
(Tag) Schlafraum - room in the Kindergarten where the kids have their lunch nap, sometimes it will be converted back to a playroom,
Wohn- Schlafraum or Wohn- Schlafzimmer - combination room in small flats in big cities or student apartments
Consider that the word "bathroom" comes from bath + room. But, a bathroom is (now) a room that has a sink, toilet, and a bath and/or a shower. If fact, a bathroom with just a sink, toilet and shower (but no bath) is still a bathroom. However, a room with just a bath in it would not be a bathroom, it would be something like "the room with just a bath in it."
In short, it would seem that "the thing Germans refer to as Schlafzimmer" is "the thing we refer to as a bedroom."
There is no distinction between "this/that" in German in the way that there is in English. Both would translate as dieses Schlafzimmer, as dies gets the -es ending to match (das) Zimmer (in nominative and accusative case), and Schlafzimmer is also neuter as it inherits the grammatical gender of the last part of the compound word.
If you really needed to specify "that bedroom over there, and this bedroom here", you'd need to use extra words (just as I did in that English sentence), like da drüben and hier.
Because a dormitory is not a bedroom.
A dormitory as in a big room with lots of beds would be a Schlafsaal, not a Schlafzimmer.
And a dormitory as in a building with lots of individual apartments for students would be a Studentenwohnheim.
A Schlafzimmer is a room with one or two beds in a home.
My reasoning behind that phrase was that punishing the answer "the sleep room" inhibits learning the way that composite words function. If you are not allowed to appreciate that "Schlafzimmer" is two words compounded, it limits your German vocabulary and your understanding of the language.
At this level, Duo's main purpose is to help one translate simple everyday sentences. Since no native English speaker would call the bedroom a 'sleep room', it marked the translation wrong. I suspect it would have been easier for them to program Duo to accept literal translations of compound words.