Learn German: Sie verstehen die Frage. - They understand the question.

Because the subject is the plural pronoun sie (they). In the regular present tense, verbs matching wir (we) and sie (they) almost always take the -en ending. This means they usually look exactly like the dictionary form of the verb.

Since Sie is at the beginning of the sentence and capitalized, couldn't this also mean 'She understands' or the formal 'You understand'?

It can't mean 'She understands' because the verb ending for 'she' is -t (Sie versteht). However, because 'they' (sie) and the formal 'you' (Sie) share the exact same -en verb ending, this sentence could absolutely mean 'You understand the question' if you were speaking to someone formally! You would only know which one it is from the context of the conversation.

Why is the word for 'the' die in this sentence?

Frage is a feminine noun. In this sentence, it is the direct object receiving the action (they are understanding it). For feminine nouns, the word for 'the' stays die whether it is the subject doing the action or the object receiving it.

How do you pronounce the 'st' in verstehen?

It is pronounced like 'sht'. In German, when an 's' and a 't' appear together at the beginning of a word or a core word-building block (like steh inside verstehen), they make a 'sh' sound followed by a 't'.