Kaupandinn býður í vasaklukkuna.

The ending -inn is the suffixed definite article in Icelandic, roughly equivalent to the in English.

So:

• kaupandi = buyer
• kaupandinn = the buyer

In this sentence, kaupandinn is also in the nominative singular because it is the subject of the verb.

Bjóða is the infinitive, meaning to bid / to offer.

In the sentence, the subject is kaupandinn = the buyer, which is third person singular, so the verb must be conjugated in the present tense, 3rd person singular:

• ég býð = I bid / offer
• þú býður = you bid / offer
• hann/hún/það býður = he/she/it bids / offers

So kaupandinn býður means the buyer bids.

This verb is somewhat irregular, so the stem changes from bjóða to býð- / býður.

Here bjóða í is best understood as a verb + preposition combination.

In this kind of context, bjóða í means to bid on something, especially in an auction-like sense.

So you should not read í too literally as physical in/into. In this sentence, it is part of the expression that goes with bjóða.

This is very common in Icelandic: a verb may combine with a preposition in a way that does not match English word-for-word.

Because vasaklukkuna is in the accusative singular definite form.

The base noun is:

• vasaklukka = pocket watch

Its definite forms include:

• vasaklukkan = the pocket watch in the nominative
• vasaklukkuna = the pocket watch in the accusative

In this sentence, the noun comes after í as part of the expression bjóða í, and that expression takes the accusative here.

So:

• í vasaklukkuna = on the pocket watch / for the pocket watch in this bidding sense

Not really in a literal spatial sense.

You are right that í often works like this:

• dative for being in something
• accusative for movement into something

But in this sentence, í is part of the idiomatic expression bjóða í. So it is better to learn bjóða í + accusative as a unit here, rather than trying to interpret it as actual movement into something.

That is a very useful habit in Icelandic: when a verb regularly appears with a certain preposition and case, learn the whole pattern together.

Yes. Vasaklukka is a compound:

• vasa- = related to vasi, meaning pocket
• klukka = clock or watch

So vasaklukka literally means something like pocket clock, which corresponds to pocket watch in English.

Compounds are extremely common in Icelandic, and learning to spot the parts can make vocabulary much easier.

A rough guide:

• ý is a long vowel, somewhat like ee in English, but with Icelandic lip rounding
• ð is like the th in this, though in Icelandic it is often softer and can be very light between vowels
• ur at the end is pronounced with a short vowel plus an r

So býður is roughly something like BEE-thur, though that is only an approximation.

Two important points for English speakers:

1. ð is never pronounced like English d
2. Icelandic r is usually trilled or tapped, not the English r

Yes, but Icelandic has a strong verb-second tendency in main clauses.

The neutral order here is:

• Kaupandinn býður í vasaklukkuna.

If you move another element to the front for emphasis, the verb usually still stays in second position. For example:

• Í vasaklukkuna býður kaupandinn.

That is possible, but it is more marked and would usually emphasize what is being bid on.

So the sentence you have is the most straightforward, neutral order.

Yes, but it changes the meaning.

• kaupandi = a buyer / buyer
• kaupandinn = the buyer

So:

• Kaupandi býður í vasaklukkuna = A buyer is bidding on the pocket watch
• Kaupandinn býður í vasaklukkuna = The buyer is bidding on the pocket watch

Icelandic usually expresses definiteness directly on the noun with the suffixed article, as you see here with -inn.