Það hangir stórt plakat um tónleikana í glugganum á kaffihúsinu.

Here það is a dummy subject or expletive, similar to English there in sentences like There is a poster in the window.

So Það hangir stórt plakat... is not really It hangs... in the usual sense. It is more like:

• There is a large poster hanging...

Icelandic often uses það this way when introducing something new into the sentence.

Word-for-word, it looks like it hangs, but in this sentence that is not the best way to understand it.

Because það is being used as a dummy subject, Það hangir stórt plakat... functions more like:

• There hangs a large poster...
• more natural English: There is a large poster hanging...

So yes, the words can look literal, but the structure is doing something slightly different.

The real subject is stórt plakat, which is singular, so the verb is singular too.

The order is different from the most basic subject + verb pattern because this is a presentational/existential-style sentence:

• Það hangir stórt plakat...

This structure is common when introducing something into the scene. English often does the same kind of thing with there is/there are.

You could also say:

• Stórt plakat hangir í glugganum á kaffihúsinu.

That is grammatical too, but it feels a bit less like introducing the poster and a bit more like simply stating a fact about it.

Because plakat is a neuter singular noun, and the adjective has to agree with it.

Here the adjective is in the strong nominative singular neuter form:

• stór = masculine/feminine forms in some contexts
• stórt = neuter singular

So:

• stórt plakat = a large poster

If the noun were masculine, you would get a different adjective form.

Plakat is a neuter noun.

In this sentence it is in the nominative singular, because it is the real subject of the clause:

• Það hangir stórt plakat...

Even though það appears first, plakat is the thing that is actually hanging, so it is nominative.

Here um means about or concerning.

So:

• plakat um tónleikana = a poster about the concert / for the concert

The preposition um normally takes the accusative, which is why the noun after it is in an accusative form.

This is a very common use of um in Icelandic:

• bók um Ísland = a book about Iceland
• frétt um málið = news about the matter

Because tónleikar is very often used in Icelandic as a plural noun for concert.

So even when English uses singular, Icelandic often uses plural:

• fara á tónleika = go to a concert
• tónleikarnir = the concert

In your sentence:

• um tónleikana = about the concert

So this is one of those places where Icelandic and English package the idea differently.

Because -na here is the definite article attached to the noun.

Compare:

• tónleika = concert(s), indefinite accusative plural
• tónleikana = the concert(s), definite accusative plural

Icelandic usually adds the as a suffix on the noun instead of using a separate word.

So um tónleikana means the poster is about the specific concert already understood from context.

Because í can take either:

• dative for location
• accusative for motion into

Here the poster is already located there, so Icelandic uses the dative:

• í glugganum = in the window

Compare:

• Ég set plakatið í gluggann. = I put the poster into the window.
  Motion/change of place → accusative
• Plakatið hangir í glugganum. = The poster is hanging in the window.
  Location → dative

Literally, á often means on, but very often in Icelandic it means at when talking about places.

So:

• á kaffihúsinu = at the café

In the full phrase:

• í glugganum á kaffihúsinu

the meaning is essentially:

• in the café’s window
• in the window at the café

This is a very natural Icelandic way to express that relationship. English often prefers of the café or just at the café, while Icelandic commonly uses a prepositional phrase.

Because á takes the dative when it expresses location rather than movement.

So here:

• á kaffihúsinu = at the café

Compare the same location/motion contrast as with í:

• Ég er á kaffihúsinu. = I am at the café.
  Location → dative
• Ég fer á kaffihúsið. = I go to the café.
  Motion/destination → accusative

This is a very common learner question.

• hanga = to hang, be hanging
  This describes the state or position.
• hengja = to hang something up
  This is the action of putting it there.

So in your sentence:

• Það hangir stórt plakat...
  = the poster is hanging

But if someone puts it there, you would use hengja:

• Hann hengdi plakatið í gluggann.
  = He hung the poster in the window.

So hanga is intransitive here, while hengja is the causative/action verb.

Yes, absolutely.

That version is grammatical and natural:

• Stórt plakat hangir í glugganum á kaffihúsinu.

The version with það is especially useful when presenting something as new information:

• Það hangir stórt plakat... = There is a large poster hanging...

The version without það is more straightforwardly about the poster itself:

• Stórt plakat hangir... = A large poster is hanging...

So both work, but the sentence with það has a slightly more scene-setting or introducing feel.