Actually, if I remember correctly it's a bit more complicated than that:
- Initially, "sie" means both "she" and "they"
- But when it appears capitalised, "Sie" is a formal "you" (like Spanish "usted")
- When using it as "she", the verb is in third person singular, "sie isst"
- When using it as formal "you" and as "they", the verb is in third person plural, "sie essen" and "Sie essen"
- In this example, "Sie" is the first word in the sentence. Therefore we can't use the capitalisation to see if it means formal "you" or "they". In this case, only the context can help us
- Since there is no context in this sentence, both "you are eating" (formal) and "they are eating" are valid answers here
Please correct me if I am wrong!
Yes, thus the answer is They eat, not she eats. She eats would be Sie isst.
So, the "old" formal Spanish (vos coméis) worked like French and the "new" formal Spanish (usted come) works like German. Cool.
It's actually both. You have to gauge which it is based on the verb tense and the context.
So to summarize:
they eat / sie essen,
she eats / sie isst,
you eat/ Sie essen (formal),
you eat / du isst (informal),
you all eat / ihr esst.
In a nutshell: "sie" can have 3 meanings: 1. they, 2. she, 3. "formal" you. While the English "you" can also be translated to 3 different words in German: 1. du (2nd person singular, informal) ex. "Hey, you!" 2. Sie (2nd person singular, formal) ex. "Your majesty~" 3. ihr (2nd person plural) ex. "See y'all later!"
Okay I understand that Capitalized "Sie" is "They" but how do I know which is which if it begins the sentence? Is the only way to tell whether the sentence (and thus being capitalized as the first word in the sentence) begins with 'She' or 'They' the verb tense?
No: capitalised "Sie" is a formal "you", if I remember correctly. In this example, it is not possible to know if it is formal "you" or "they", because "Sie" is the first word in the sentence, and regardless of other considerations. It's ambiguous and both answers are correct.
English has a similar ambiguity: it's not possible to know if "you are eating" refers to a singular or a plural subject. Translating into German, both "Du isst" and "Ihr esst" would be correct. Also would be correct "Sie essen", as Modern English doesn't have the distinction between formal/informal. Precursors of the modern English language had the informal "thou", that is mostly lost nowadays.