Við keyrum hægt í hringtorginu þegar umferðin er mikil.

Keyra is the infinitive, meaning to drive.
Keyrum is the 1st person plural present tense form, meaning we drive.

So:

• að keyra = to drive
• við keyrum = we drive

The subject við means we, so the verb has to match it.

Keyra is a very common verb meaning to drive. It is also used more broadly for operate/run in some contexts, but here it clearly means drive.

In this sentence it is in the present tense:

• ég keyri = I drive
• þú keyrir = you drive
• hann/hún/það keyrir = he/she/it drives
• við keyrum = we drive
• þið keyrið = you drive
• þeir/þær/þau keyra = they drive

Here hægt is being used adverbially, so it means slowly, not slow.

Compare:

• bíllinn er hægur = the car is slow
  
  • Here hægur is an adjective describing a masculine noun.
• við keyrum hægt = we drive slowly
  
  • Here hægt functions like an adverb.

In Icelandic, the neuter singular form of an adjective is often used adverbially.

Because í can take different cases depending on meaning.

With í:

• accusative usually means motion into something
• dative usually means location in/inside/at something

Here the meaning is in the roundabout / while in the roundabout, so it is a location, not movement into it. That is why Icelandic uses the dative:

• hringtorg = roundabout
• hringtorginu = the roundabout (dative singular definite)

So:

• í hringtorgið would suggest movement into the roundabout
• í hringtorginu means being in the roundabout

The ending shows both case and definiteness.

Hringtorg is a neuter noun.
Hringtorginu means the roundabout in the dative singular.

So the word includes the definite article:

• hringtorg = a roundabout
• hringtorgið = the roundabout (nominative/accusative singular definite)
• hringtorginu = the roundabout (dative singular definite)

Icelandic usually adds the as a suffix on the noun rather than using a separate word like English.

Umferð means traffic, while umferðin means the traffic.

In Icelandic, the definite article is usually attached to the noun:

• umferð = traffic
• umferðin = the traffic

In this sentence, Icelandic uses the definite form because it is talking about the traffic in that situation, not traffic in a completely abstract way.

Because mikil agrees with umferðin, which is a feminine singular noun.

Icelandic adjectives must agree with the noun they describe in:

• gender
• number
• case

So here:

• umferðin = feminine singular
• therefore mikil = feminine singular form of mikill (big / great / heavy)

In this context, umferðin er mikil means the traffic is heavy.

Some related forms are:

• mikill = masculine singular
• mikil = feminine singular
• mikið = neuter singular

Here þegar means when.

It introduces a time clause:

• þegar umferðin er mikil = when the traffic is heavy

Be careful, because þegar can also mean already in other contexts.

For example:

• Ég er þegar kominn. = I have already arrived.

So the meaning depends on the sentence.

That is the normal word order for this kind of subordinate clause.

The clause starts with þegar (when), then comes the subject and verb:

• þegar umferðin er mikil

Literally:

• when traffic-the is heavy

This is very natural Icelandic word order.

Also notice that the adjective mikil comes after er, just as in English:

• umferðin er mikil = the traffic is heavy

Usually, no. Icelandic normally keeps the subject pronoun unless there is a specific reason to omit it.

So:

• Við keyrum hægt ... = We drive slowly ...

Even though keyrum already shows we, Icelandic still normally includes við.

This is different from some languages where subject pronouns are often dropped.

Not in this sentence. Here umferð means traffic as a mass noun, much like in English.

So:

• mikil umferð = heavy traffic

It is not referring to individual vehicles one by one, but to traffic as a whole.

It can be read as a general/habitual statement:

• We drive slowly in the roundabout when traffic is heavy.

The present tense in Icelandic, just like in English, can describe:

• habitual actions
• general truths
• actions happening now, depending on context

Without more context, this sentence most naturally sounds like a general rule or habit.

A rough literal breakdown is:

• Við = we
• keyrum = drive
• hægt = slowly
• í hringtorginu = in the roundabout
• þegar = when
• umferðin = the traffic
• er = is
• mikil = heavy / great

That kind of breakdown can help you see how Icelandic builds the sentence, even if natural English would be phrased a bit more smoothly.