Learn Spanish (Latin America): Ustedes duermen en un hotel tranquilo.

The dictionary form of the verb is dormir (to sleep). But dormir is a "stem-changing" verb. When you conjugate it for ustedes (you all), the o in the stem changes to ue. That is why it becomes duermen.

Does ustedes mean "you" formal or informal here?

In Latin America, ustedes is the standard way to say "you" to more than one person. It is used in all situations, whether you are talking to a group of close friends (informal) or strangers (formal).

Why is the word order hotel tranquilo instead of "tranquilo hotel"?

In Spanish, descriptive adjectives like tranquilo (quiet or calm) usually come right after the noun they describe. Because of this rule, "a quiet hotel" is translated as un hotel tranquilo.

Do I pronounce the "h" in hotel?

No, the letter "h" is silent in Spanish. You pronounce hotel as if it started directly with the "o".