Are you a Duolingo official?
No, I am not.
I used to contribute to this course as a volunteer contributor, but Duolingo stopped using volunteers for this and now the course is maintained by paid freelancers.
I am still a forum moderator (so I can delete comments, for example) but I am not employed by Duolingo.
No, it's not an error.
er, sie, es can be used to refer to things that are grammatically masculine, feminine, or neuter, respectively, whether they are human or not.
So if you had just been talking about, say, a motorbike and used the colloquial term die Maschine for it, which is feminine, then you might afterwards say, Ist sie schnell?, but the English translation would be, "Is it fast?" because we don't (usually) call motorbikes "she".
However, the course doesn't consistently accept "it" as a translation of er, sie nor vice versa -- so for Duolingo, it's generally best to stick to er = he, sie = she, es = it but be aware that any of er, sie, es may be used for "it" when you have context.
I was taught that Sie as in She is supposed to be spelled with a capital S
Then you were either taught incorrectly or you misremembered.
Capitalised Sie is the formal "you".
The words for "she" and "they" are both sie, lowercase. (Except, of course, when they're the first word in a sentence.)