Umslagið er tilbúið, en frímerkið er enn á borðinu við hliðina á pennanum.

Yes:

• Umslagið = the envelope
• er = is
• tilbúið = ready
• en = but
• frímerkið = the stamp
• er = is
• enn = still
• á borðinu = on the table
• við hliðina á pennanum = beside the pen / next to the pen

A more literal structure is:

• The envelope is ready, but the stamp is still on the table beside the pen.

They are completely different words:

• en = but
• enn = still, yet, or sometimes even, depending on context

In this sentence:

• en connects the two clauses: the envelope is ready, but...
• enn tells you the situation continues: the stamp is still on the table

So the extra n matters a lot.

Because Icelandic usually adds the definite article directly to the end of the noun.

So:

• umslag = an envelope
• umslagið = the envelope

and

• frímerki = a stamp
• frímerkið = the stamp

For many neuter nouns, the definite form in the singular looks like -ið.

So -ið here is basically part of saying the.

Because Icelandic adjectives must agree with the noun they describe in gender, number, and case.

The noun umslagið is:

• singular
• neuter
• nominative here

So the adjective has to match it:

• tilbúinn = masculine singular nominative
• tilbúin = feminine singular nominative
• tilbúið = neuter singular nominative

Since umslag is a neuter noun, you get umslagið er tilbúið.

Because á can take different cases, and here it expresses location.

• á borðinu = on the table meaning the stamp is already there

When á means location, it usually takes the dative.

That is why you see:

• borð = table
• borðinu = on the table / the table in dative definite form

A very useful contrast is:

• á borðinu = on the table already there
• á borðið = onto the table movement toward it

So the form tells you whether something is located somewhere or moving there.

Because the expression við hliðina á is a fixed phrase meaning beside or next to, and the noun after that final á goes in the dative.

So:

• penni = a pen
• pennanum = the pen, dative singular definite

It is best to learn við hliðina á as one chunk:

• við hliðina á borðinu = beside the table
• við hliðina á bílnum = beside the car
• við hliðina á pennanum = beside the pen

It means beside, next to, or at the side of.

It is an idiomatic expression, so learners usually memorize it as a set phrase rather than trying to translate each part separately every time.

In this sentence:

• á borðinu við hliðina á pennanum = on the table beside the pen

So the stamp is not just on the table; it is specifically on the table in a position next to the pen.

Here are the basic forms you would normally look up:

• umslagið → umslag
• tilbúið → tilbúinn
• frímerkið → frímerki
• borðinu → borð
• pennanum → penni

And this is useful too:

• við hliðina á is usually learned as a whole expression

This is important because Icelandic words often appear in a changed form in real sentences.

That is normal Icelandic word order.

In a simple statement, short adverbs like enn often come after the finite verb:

• frímerkið er enn á borðinu

This is very similar to English the stamp is still on the table.

So er enn is a very natural sequence here.

The key change would be the form after á.

Current sentence:

• frímerkið er enn á borðinu = the stamp is still on the table
  Location, so dative

If you mean movement onto the table, you would normally use accusative instead:

• frímerkið fer á borðið = the stamp goes onto the table
• settu frímerkið á borðið = put the stamp onto the table

So:

• á borðinu = on the table
• á borðið = onto the table

That location-versus-movement contrast is one of the most important things to notice in this sentence.