Learn Icelandic: Verkefnið er í tveimur skrefum.

The preposition í (in) requires the words that follow it to be in the dative case when describing a state or location. The number two changes its form based on the case, and tveimur is the dative form.

Since the word for step (skref) is neuter, shouldn't the number match its gender?

It does, but you get a lucky break here! For the number two, the dative form tveimur is exactly the same for masculine, feminine, and neuter nouns. You don't have to memorize a special neuter dative form for this number.

Why does skrefum end in -um?

Because there are two steps, the word must be plural. The preposition í forces it into the dative case. In Icelandic, the dative plural ending for almost all nouns is -um.

What is the -ð at the end of Verkefnið?

It is the definite article, meaning "the". The base noun for project is verkefni. Since Icelandic attaches "the" to the end of the noun, and verkefni ends in a vowel, it simply takes the ending -ð to become "the project".