。
She lives in a very big house.
Literal
She [topic-は] very big house [in-に] is-living.
に marks the location of habitation with 住む — note that で is wrong here; you live IN a place, framed as the destination of your residing. 住んでいる reflects the standard ~ている treatment of state verbs: the moment of moving in already happened; what we describe is the resulting state of dwelling there.