What Miriam says is correct, I want to rephrase:

In German, we have three words for "you": du/ihr und Sie.

We say that "du"/"ihr" is the informal way of addressing people, and "Sie" is the formal way.

We use "Sie" to address all unknown persons, unless they are children/teenagers. We use "Sie" to our teachers, superiors in the job, customers, etc.

We use "du"/"ihr" to address family members, friends, children etc. We use "du" almost everywhere when talking to strangers in the internet.

People who are higher in the hierarchy may "offer" to the other to switch to using "du" instead of "Sie".

When in doubt what is appropriate, using "Sie" means that you are on the safe side. Using "du" to address people who may have expected "Sie" may be an insult. On the other hand, if you are obviously a foreigner struggling with German, making an error here is usually forgiven.

"Ihnen", "dich", "dir" etc. are declensions of "Sie" and "du".

"Sie" is written with a capital letter, for politeness and to distinguish it from "sie" (they, she). Also, "Du", "Dir" etc. are usually spelled with a capital letter when we address people in written (letter, e-mail). This is also a question of being polite.

I hope it helps.

The formal you is always written with a capital letter: Sie.

Sie: you

sie: she, they

If "sie" means she or they in the nominative can be understood by the verb:

sie ist, isst, geht = she is, eats, goes

sie sind, essen, gehen = they are, eat, go

In the dative form there is a clear distinction between her and them:

Ich helfe ihr. I help her.

 Ich helfe ihnen. I help them.

Ich helfe Ihnen. I help you. (formal, capitalised)

Ich helfe dir. I help you. (informal)

Unfortunately in the accusative her and them looks the same, so have to be understood from the context:

Ich sehe sie. I see her/them.

 Ich sehe Sie. I see you. (formal)

http://www.germanveryeasy.com/m/pronouns

When to use the formal Sie or the informal du is a tricky question for Germans as well. So, if you are not sure, which to use, choose Sie or let the Germans take they lead. Using du, when it isn't appropriate can be regarded as offensive. In general it is the elder or superior person, who offers the du: "Wollen wir uns duzen" (How about we use the informal you?"

du: shows intimacy, but also disrespect. Used between family (also parents) and friends, for children, between young people and students.

Sie: shows respect, but also distance. Used with people, who are elder, superior, met for the first time, with whom one doesn't have a close relationship, customers.

To switch from Sie to du it is necessary to ask this question "Wollen wir uns duzen?" 

http://m.dw.com/en/the-du-sie-dilemma-in-german/a-16494631

danke @Andreas and @Miriam !

I will need to speak and practice more to get better at this :)