Learn Hardcore Italian: Lo zio legge il giornale sul divano. - The uncle reads the newspaper on the sofa.

The masculine singular definite article lo is required before nouns beginning with z (and also s + consonant, ps, gn, x, y). Since zio starts with z, it takes lo rather than il.

What tense and person is legge, and how is it formed?

Legge is the third-person singular present indicative of the verb leggere (to read). The full present-tense conjugation is:
io leggo, tu leggi, lui/lei legge, noi leggiamo, voi leggete, loro leggono.

Why do we say il giornale instead of un giornale, and what’s the difference?

Using the definite article il before giornale implies a specific newspaper or the notion of “the newspaper” as a general concept (e.g., reading the news). Saying un giornale (“a newspaper”) refers to one unspecified newspaper among many.

What does sul mean, and why is it written as one word?

Sul is a contraction of the preposition su (on) and the definite article il (the):
su + il = sul
It simply means “on the.”

Could we use a different preposition instead of su, like in?

No, for “on the couch” Italian uses su. The preposition in is used for “inside” something (e.g., in casa = in the house), not for “on” a surface.

Can the phrase sul divano be moved to the front of the sentence?

Yes, but it sounds more emphatic or poetic. You could say:
Sul divano legge lo zio.
Standard word order, however, places the location after the verb.

How would you say “My uncle is reading the newspaper on the couch” to emphasize the ongoing action?

You can use the present continuous in Italian:
Mio zio sta leggendo il giornale sul divano.
The simple present (Mio zio legge…) is also acceptable for a current action.