Við erum inni því það rignir mikið.

Because við means we, and the verb að vera (to be) has to agree with the subject.

In the present tense:

• ég er = I am
• þú ert = you are
• hann/hún/það er = he/she/it is
• við erum = we are
• þið eruð = you are (plural)
• þeir/þær/þau eru = they are

So við erum is simply the correct we are form.

Inni means inside or indoors.

In this sentence, Við erum inni means We are inside / We are indoors.
It is not a verb by itself; it is an adverb describing location.

A useful contrast is:

• inni = inside, indoors
• úti = outside, outdoors

So:

• Við erum inni. = We are inside.
• Við erum úti. = We are outside.

Here því means because.

So the sentence structure is:

• Við erum inni = We are inside
• því það rignir mikið = because it is raining a lot

In everyday Icelandic, learners will often also see:

• því að = because
• af því að = because

So this sentence could also be expressed with a longer form such as af því að. In this sentence, því is a shorter causal connector meaning because.

Because Icelandic, like English, often uses a dummy subject with weather expressions.

Compare:

• English: It is raining.
• Icelandic: Það rignir.

The það does not refer to a specific thing. It works like English it in weather sentences.

This same pattern appears in other expressions too:

• Það snjóar. = It is snowing.
• Það er kalt. = It is cold.

So það rignir is the normal way to say it is raining.

Rignir is the present tense form of the verb að rigna (to rain).

So:

• að rigna = to rain
• það rignir = it rains / it is raining

In this kind of sentence, Icelandic uses the 3rd person singular, because the subject is það.

This is very similar to English:

• it rains
• it is raining

Depending on context, Icelandic present tense can correspond to either simple present or present progressive in English.

Here mikið means a lot or heavily.

So það rignir mikið means:

• it rains a lot
• it is raining a lot
• more naturally in English: it is raining heavily

Grammatically, mikið is the neuter singular form of mikill (big, much), but here it is being used adverbially to modify the verb rignir.

This is very common in Icelandic: a neuter singular adjective form is often used like an adverb.

Compare:

• Það rignir mikið. = It is raining a lot / heavily.
• Hann vinnur mikið. = He works a lot.

After því meaning because, the clause keeps normal subordinate-clause word order:

• það = subject
• rignir = verb
• mikið = adverb

So:

• því það rignir mikið

is the expected order.

A learner may expect Icelandic always to put the verb in second position, but after a conjunction like því meaning because, the clause behaves more like a regular subordinate clause, so subject + verb is normal here.

No. Icelandic has several common ways to express because.

You will often see:

• því
• því að
• af því að

All can introduce a reason clause. In many contexts, af því að is especially common in everyday speech.

So these are all possible types of sentences:

• Við erum inni því það rignir mikið.
• Við erum inni því að það rignir mikið.
• Við erum inni af því að það rignir mikið.

A learner should mainly recognize that all of them can mean because.

These two letters are very important in Icelandic.

• þ is pronounced like the th in thin
• ð is pronounced like the th in this

In your sentence:

• Við begins with v, and the ð at the end is a soft voiced th sound.
• því begins with þ, so it starts with the thin sound.

Very roughly:

• við ≈ vith with a soft th
• því ≈ thvee

The exact Icelandic pronunciation is a bit different from English, but those comparisons are a good starting point.

Not in this sentence.

• inni means inside/indoors as a location
• inn usually means in in the sense of into, or it appears in other grammatical uses

After vera (to be), Icelandic normally uses the location word inni:

• Við erum inni. = We are inside.

If you are talking about movement into somewhere, then forms related to inn can appear:

• Við förum inn. = We go in.

So a useful distinction is:

• vera inni = to be inside
• fara inn = to go in