Just confused me a whole lot that now sie means she and sie means they... everything just got confusing.
"Sie" means both "she" and "they". You can tell by which verb ending is used. I know it seems very confusing right now but don't worry, once you know how to conjugate verbs it'll get easier!
The conjugation of essen with sie "She" is isst. The conjugation of essen with sie "they"is essen
In German you say formally "Sie" to a person to adress, so when you ask "Essen sie?" It means "are you eating?, too.
That was my thought too, and in speech it would be ambiguous, but in writing, Sie for "you" is capitalised, while "sie" means they (in this context) or she.
It's wrong because "sie" isn't capitalised. It has to be capitalised in order to mean "you".