Learn Italian: I monaci, i quali seguono una disciplina austera, vivono nel monastero. - The monks, who follow an austere discipline, live in the monastery.

In Italian, che is the most common way to say "who" or "that." However, il quale (and its forms like the masculine plural i quali) is a more formal alternative. You will often see it in written Italian or formal speech. Unlike che, it changes to match the gender and number of the noun it refers to (here, the masculine plural i monaci). In this sentence, using che would also be perfectly correct, but i quali slightly elevates the tone.

I thought words ending in -co usually pluralize to -chi. Why is it monaci here?

The plural of words ending in -co generally depends on where the stress falls in the singular word. If the stress is on the second-to-last syllable (like parco), the plural is usually -chi (parchi). But if the stress is on the third-to-last syllable (like mònaco or mèdico), the plural usually softens to -ci (monaci, medici). There are exceptions (like amico becoming amici), but this stress rule is a very reliable guide at the B2 level!

Could we say vivono in monastero instead of nel monastero?

Yes, you could, but the nuance shifts slightly. Saying vivono in monastero focuses abstractly on the lifestyle or the state of being cloistered (similar to the English concept of being "in hospital" or "in prison" without the article). Using nel monastero, as this sentence does, points more tangibly to the physical building or a specific monastery.