Why was "It is Spanish" marked as wrong? Does Spáinneach refer specifically to a human being - a Spaniard or Spanish man?
Spanish was listed in the hints so I thought that "It" was just as valid a translation as "He" given that there was no context and we have no way of knowing what or who precisely was being referred to.
Typically a “nationality noun” would refer to a person (I would have translated this sentence as “He’s a Spaniard” myself), but in the case of Spáinneach, it can also refer to a Spanish ship; thus, “It is Spanish” could be a possible translation in this case, e.g. as a response to “What kind of ship is it?”.
EDIT: The Gramadach na Gaeilge site mentions that ships are always referred to with feminine pronouns, even if the appropriate noun is masculine, so Spáinneach in this exercise’s sentence wouldn’t refer to a ship because of the pronoun é. It could still refer to something Spanish rather than someone Spanish, though — for example, it could refer to a wine, since fíon is masculine — so “It is Spanish” should still be acceptable.
Spáinneach isn't an adjective in this sentence, it's a noun - that's why this sentence uses the copula. Technically, the sentence is "He is a Spaniard", but by convention, it also means "He is Spanish". So Is Spáinneach í is "She is a Spaniard/She is Spanish".
Spáinneach is also an adjective, but the feminine form of the adjective is also Spáinneach, so bean Spáinneach is "a Spanish woman".