To conjugate the verb correctly, know the subject - specifically, whether it's singular or plural.
The subject of this sentence is "Pablo y Olivia" which is two people; we have a plural subject.
The options are as follows.
a. bailas - "you dance" (informal)
b. bailan - "they dance"
c. bailamos - "we dance"
d. baila - "he/she dances" or "you dance" (formal)
As you can see, the option that makes most sense for our plural subject is option b - bailan.
Pablo y Olivia bailan en la fiesta.
