"František a Žofie žijí u jejích rodičů."

[ken55414]

u = at, near, by. How do we know if they live at or near her parents?

[VladaFu]

It is just understood in this specific phrase that it is "at". You have to learn that.

[Dimanche756535]

I disagree. It would be "...at their parents' " (note the apostrophe)

[DaanBanaan18]

Does the verb have to be 'žít' or can it also be 'bydlet' here?

[VladaFu]

it can