Learn Dutch: Het ontwerp is innovatief, zij het niet erg compact. - The design is innovative, albeit not very compact.

Zij het translates to "albeit" or "even if it is". Unlike a subordinating conjunction like hoewel (although), which typically requires a full clause with a subject and a verb (e.g., hoewel het niet erg compact is), zij het elegantly attaches a restricting adjective or short phrase directly to the main clause.

Why is the word 'zij' used here instead of 'is'?

Zij is an old subjunctive form of the verb zijn (to be). The phrase zij het literally means "be it" — which is exactly where the English word "albeit" (although it be) comes from! At B2 level, you don't need to learn how to form the Dutch subjunctive; just treat zij het as a fixed vocabulary expression.

Can I use 'zij het' to introduce a full subclause with a subject and a verb?

Not on its own. If you want to introduce a full clause, you must add dat, forming zij het dat (meaning "although" or "with the restriction that"). For example: Het ontwerp is innovatief, zij het dat het veel stroom verbruikt (The design is innovative, albeit that it consumes a lot of power).

Could I just say '..., hoewel niet erg compact' instead?