Mér finnst þjónustan í bakaríinu góð.

Because Icelandic does not structure this idea the same way English does.

With að finnast, the person who has the opinion goes in the dative case, so mér means to me. A very literal version of the sentence is something like:

To me, the service in the bakery seems good.

So:

• mér = to me
• þjónustan = the service
• finnst = seems / is found
• góð = good

That is why Ég finnst ... is not correct here.

The dictionary form is að finnast.

This is easy to confuse with að finna, but they are different verbs:

• að finna = to find, to feel, to discover
• að finnast = to seem, to think, to find something to be...

So in this sentence, finnst does not mean finds in the physical sense. It expresses an opinion or impression:

• Mér finnst þetta gott. = I think this is good.
• literally: This seems good to me.

Because the verb agrees with þjónustan, not with mér.

In this sentence:

• mér is dative and means to me
• þjónustan is the nominative subject
• þjónustan is singular
• therefore the verb is finnst = singular

If the thing being judged were plural, the verb would be plural too:

• Mér finnst þjónustan góð. = I think the service is good.
• Mér finnast kökurnar góðar. = I think the cakes are good.

So the verb form depends on the noun being evaluated, not on the person who has the opinion.

Because þjónustan is the definite form: the service.

The basic noun is:

• þjónusta = service

The definite article in Icelandic is usually attached to the end of the noun rather than written as a separate word. So:

• þjónusta = service
• þjónustan = the service

That is why there is no separate word for the in front of the noun.

Because góð has to agree with þjónustan.

The noun þjónusta is:

• feminine
• singular
• nominative here

So the adjective must also be feminine singular nominative:

• góður = masculine
• góð = feminine
• gott = neuter

Compare:

• Þjónustan er góð. = The service is good.
• Brauðið er gott. = The bread is good.
• Kaffið er gott. = The coffee is good.

Because í can take different cases, and here it shows location.

With í:

• dative is used for being in a place
• accusative is used for movement into a place

Here the meaning is static location, so Icelandic uses the dative:

• í bakaríinu = in the bakery

The noun is:

• bakarí = bakery
• bakaríið = the bakery (nominative)
• bakaríinu = the bakery (dative)

Compare:

• Ég er í bakaríinu. = I am in the bakery.
• Ég fer í bakaríið. = I go into/to the bakery.

Because it is a predicate adjective: it describes the noun through the verb, rather than directly sitting in front of it.

In English, we also do this:

• The service is good.

Icelandic works similarly here:

• þjónustan ... góð = the service ... good

The phrase í bakaríinu simply adds extra information about þjónustan, so the whole structure is:

• Mér finnst = I think / it seems to me
• þjónustan í bakaríinu = the service in the bakery
• góð = good

So the word order is very natural Icelandic.

Yes. That is also grammatical.

Icelandic allows more flexibility in word order than English, especially because case endings show what each word is doing. Both of these are correct:

• Mér finnst þjónustan í bakaríinu góð.
• Þjónustan í bakaríinu finnst mér góð.

The first one is probably the most neutral for a learner. The second can put a bit more focus on þjónustan í bakaríinu.

A good English-based approximation is:

• þ sounds like th in thing
• ð sounds like th in this

So:

• þjónustan starts with a th sound, not a t sound
• góð ends with a soft ð, not a hard d

A rough learner-friendly pronunciation might be:

• Mér finnst þjónustan í bakaríinu góð
• myair finst thyo-nus-tan ee ba-ka-REE-inu goth

That is only an approximation, but the important part is:

• do not pronounce þ like t
• do not pronounce ð like d in careful Icelandic pronunciation