Learn Spanish (Spain): ¿Estáis ocupados o listos?

Estáis is the vosotros form of the verb estar. In Spain, this is used to say "you" when talking informally to a group of people, like saying "you guys" or "y'all" in English.

Why do we use estar instead of ser in this sentence?

We use estar to talk about temporary states or conditions. Being busy (ocupados) or ready (listos) are states that change, so estar is the right choice here.

I thought listo meant "smart". Why does it mean "ready" here?

The meaning of listo changes depending on the verb you use it with! When used with ser, it means "smart" (a characteristic). But when used with estar, as in this sentence, it means "ready" (a temporary state).

Why do ocupados and listos end in -os?

Adjectives in Spanish have to match the people they describe in gender and number. Because the speaker is talking to a plural "you" that includes at least one male (or a mixed group of men and women), the adjectives take the masculine plural -os ending.