Bíddu hér í smástund.

Because bíddu is the imperative singular of bíða (to wait).
In other words:

• bíða = to wait
• bíddu = wait! / wait here! when speaking to one person

So the sentence uses the normal command form, not the infinitive.

Bíddu is for one person.

If you are telling more than one person to wait, you would say:

• Bíðið hér í smástund.

So the sentence as written is singular: you are addressing one listener.

In Icelandic, the subject pronoun is usually left out in commands, just as it often is in English:

• Wait here.
  not usually You wait here.

So bíddu already includes the idea of you. Adding þú is possible for emphasis, but it is not the normal neutral way to give a simple instruction.

Hér is an adverb meaning here. It tells you the location where the person should wait.

It does not change form for case, gender, or number, because it is not a noun or adjective.

Because hér refers to location, not movement.

This sentence means the person should stay/wait in this place. If Icelandic wants to show movement toward a place, it often uses a different word, such as hingað (to here).

So:

• hér = here (location)
• hingað = to here (motion toward here)

In Bíddu hér í smástund, the idea is location, so hér is the right choice.

This is a very common Icelandic pattern. With expressions of time duration, í can mean something like for or for the duration of in English.

So:

• í smástund = for a moment / for a short while

Even though í often means in, prepositions do not match perfectly between languages. Here it is part of a normal time expression.

Smástund means a short moment, a little while, or a brief time.

It is basically built from:

• smá = small / little
• stund = moment / while / period of time

So the whole word means something like a little while.

Because Icelandic very often forms compound words by writing them together. English sometimes uses separate words where Icelandic prefers one compound.

So smástund is a normal Icelandic compound noun meaning a short while.

It is in the accusative singular after í in this time expression.

A useful rule of thumb is:

• í + time period often uses the accusative to mean for/during a period of time

So in í smástund, the noun is functioning as a duration phrase: for a short while.

Also, the form smástund looks the same here as the basic dictionary form, so you do not see an obvious ending change.

It is usually neutral and natural. It can sound perfectly normal in everyday speech, depending on tone of voice and context.

It is a straightforward instruction, like:

• Wait here a moment.

If you want to sound softer or more polite, Icelandic often changes the wording rather than using a special formal pronoun. For example:

• Viltu bíða hér í smástund? = Would you wait here for a moment?

So the original sentence is not rude by itself, but it is a direct command.

No, this is a very normal word order for a simple command:

• Bíddu = verb/command
• hér = place
• í smástund = time duration

So the sentence follows a very natural pattern:

command + place + time

You might see other orders in special contexts for emphasis, but Bíddu hér í smástund is the most straightforward version.