The following sentence is ambiguous. Provide two explanations which illustrate the different meaning of the sentence. "They are visiting relatives."

The key word here is “visiting.” Is it used as a verb, or as an adjective?
If “visiting” is used as a verb in combination with the helping verb “are,” then this use is considered a progressive aspect of its form. The action is in progress. The visiting is going on right now. “They” refers to a group of people. This group happens to be in the process of visiting its relatives, somewhere. The implication is that at least a bit of traveling was involved in reaching the destination where these relatives live.
If “visiting” is used as an adjective, then it modifies the plural noun “relatives.” Now the main action switches to the other group mentioned in the sentence. “They” is a pronoun referring to the “visiting relatives.” The word “are” merely indicates a state of being. The sentence describes who these people are. They happen to be relatives who are visiting someone’s home. For how long, we don’t know.