Learn Dutch: Zij zijn niet klaar.

The pronoun zij can mean either "she" or "they". You can always tell which one it is by looking at the verb next to it. Here, the verb is zijn (the plural form for "are"), so zij must mean "they". If the sentence meant "She is not ready", it would use the singular verb: Zij is niet klaar.

Could I say ze instead of zij in this sentence?

Yes, you can. Ze is the unstressed, everyday version of zij. You use zij when you want to put special emphasis on the word "they" (for example, "They are not ready, but we are"). Otherwise, Ze zijn niet klaar is perfectly fine and very common.

I have seen klaar translated as "done" or "finished" before. Can it mean that here?

Yes, it absolutely can. Depending on the situation, Zij zijn niet klaar can mean "They are not ready" (to go out, for example) or "They are not finished" (with their dinner or homework).

Why is niet placed right between zijn and klaar?