Learn Italian: Sembra che la dieta vegetariana sia molto sana. - It seems that the vegetarian diet is very healthy.

The phrase sembra che (it seems that) expresses an opinion or a level of uncertainty. In Italian, this triggers the subjunctive mood. sia is the present subjunctive form of essere (to be).

Since sia is the subjunctive form for 'I', 'you', and 'he/she/it', how do we know who it refers to?

You have to look at the subject of the clause. Here, the subject is la dieta vegetariana (the vegetarian diet), so sia acts as the 'it' form. In sentences where the subject isn't obvious, Italians often add the subject pronoun (like io or tu) right before the verb to avoid confusion.

Why does this sentence use sana instead of sano?

The adjective sana (healthy) describes the noun la dieta (the diet), which is feminine and singular. Adjectives connected to a subject by the verb essere always have to agree in gender and number with that subject.

Could I use the indicative è if I am absolutely certain the diet is healthy?

No, because the grammatical trigger is the phrase sembra che. Even if you personally believe it is a fact, starting the sentence with "it seems that" frames it as an opinion or appearance, so the subjunctive sia is strictly required.