Why can "zijn" only refer to his, not to their in this sentence?
The possessive "zijn" can never be plural, it always means "his". Here's the full list, for reference:
Why are there so few sentences in duolingo that use "hun"?
Would "it's arms are short." Be okay, because I remember zijn meaning "it's" or am I going mad.
Probably, but it'd have to be "its" in any case.
Kort like corto in Spanish.