Learn Hardcore Icelandic: Þau borða saman.

Þ is like the unvoiced th in English thin.
ð (in borða) is like the voiced th in this.
au (in Þau) is a diphthong roughly like the oy in boy, but with rounded lips.
Stress is on the first syllable of each word: ÞAU bór-ða sá-man (Icelandic generally stresses the first syllable).

What exactly does þau mean, and how is it different from þeir and þær?

þeir = they (all male)
þær = they (all female)
þau = they (mixed genders or when the group corresponds to a neuter plural noun like börn “children” or hjón “a married couple”) Modern speakers often prefer þau for mixed/unspecified groups for inclusivity. If it’s definitely all men, use þeir; all women, þær.

Can þau refer to just two people, like a couple?

Yes. þau is plural and can refer to any group of two or more. It’s very common for couples, especially because the word hjón (married couple) is neuter plural: þau hjónin “the couple.” Even without a noun, þau can stand for “they (that couple).”