U pješčaniku nećak gradi cestu, a nećakinja sjedi pokraj njega.

Because u can take different cases depending on meaning:

• u + accusative = motion into something
• u + locative = being in something

Here there is no movement into the sandbox; the action is happening there. So Croatian uses the locative:

• pješčanik = sandbox
• u pješčaniku = in the sandbox

Compare:

• Idem u pješčanik. = I’m going into the sandbox.
• Igram se u pješčaniku. = I’m playing in the sandbox.

Because cestu is the accusative singular form of cesta.

The noun cesta is feminine, and in this sentence it is the direct object of gradi:

• gradi što? = builds what?
• cestu = a/the road

So:

• cesta = nominative
• cestu = accusative

This is a very common pattern for feminine nouns ending in -a:

• kuća → kuću
• knjiga → knjigu
• cesta → cestu

They are the masculine and feminine forms for the same family relationship:

• nećak = nephew
• nećakinja = niece

So the sentence contrasts a male child and a female child:

• nećak gradi cestu
• nećakinja sjedi pokraj njega

Croatian often has separate masculine and feminine nouns for people.

Both can often be translated as and, but they do not feel exactly the same.

• i simply adds another piece of information
• a often links two parallel or contrasting ideas

In this sentence, a works well because it sets the two children side by side:

• the nephew is building
• the niece is sitting

So a here feels like while / whereas / and in a mildly contrastive sense.

Because Croatian normally separates coordinated clauses with a comma when they have their own verbs.

Here you have two clauses:

1. U pješčaniku nećak gradi cestu
2. a nećakinja sjedi pokraj njega

Each clause has its own verb:

• gradi
• sjedi

So the comma is standard.

Njega is the form of on used here because pokraj requires the genitive.

• on = he
• njega = of him / him

The preposition pokraj means beside / next to, and it takes the genitive:

• pokraj njega = next to him

So you cannot say pokraj on.

Yes. In many contexts, pokraj njega and pored njega both mean next to him / beside him.

• sjedi pokraj njega
• sjedi pored njega

Both are natural. Depending on region or style, one may be more common than the other, but both are correct and easy to understand.

It can mean either, depending on context.

Croatian present tense often covers both:

• a general/habitual meaning: builds
• an action happening now: is building

In this sentence, because it describes a scene, English would usually translate it as:

• is building

So nećak gradi cestu most naturally means the nephew is building a road.

Like gradi, it can mean both in Croatian.

• sjedi = sits / is sitting

In a scene description like this one, English usually prefers is sitting:

• nećakinja sjedi pokraj njega = the niece is sitting next to him

Croatian does not need a separate progressive form like English is sitting.

Croatian word order is more flexible than English word order. Putting U pješčaniku first helps set the scene:

• In the sandbox, ...

It gives the location first, then tells you what the people are doing there.

A different order is also possible, for example:

• Nećak u pješčaniku gradi cestu...

But the original version sounds very natural because it introduces the setting before the actions.

Because Croatian has no articles.

English distinguishes:

• a road
• the road

Croatian usually leaves that unstated and relies on context:

• cestu can mean a road or the road

The same applies to:

• nećak = a nephew / the nephew
• nećakinja = a niece / the niece

You understand which is meant from the situation.

It can absolutely refer to a small road made in play, especially in a sandbox context.

Croatian often uses the normal noun:

• cesta = road

Even if a child is just making a toy road or a road shape in the sand, gradi cestu sounds natural.

A learner may find both tricky because of Croatian consonant combinations.

A rough guide:

• nećakinja ≈ ne-chah-kin-ya
• pješčaniku ≈ pye-shcha-nee-koo

A few useful sound notes:

• ć is a soft ch-like sound
• nj sounds like ny in canyon
• pj starts with a py-like sound
• š sounds like sh

These are only approximations, but they help as a starting point.