Astronomers can now report that active star formation was going on at a time when the universe was only 20% as old as it is today. When astronomers make such a statement, how can they know what was happening inside galaxies way back then

The astronomers could know what was happening inside galaxies way back then by the fact that;

they examine the spectra of galaxies (or the overall colors of galaxies) with the highest redshifts they can find

Astronomers Measure the wavelength of the light that is stretched, so the light is seen as 'shifted' towards the red part of the spectrum by using spectroscopy. This measure is also called redshift.

This invokes a ray of light through a triangular prism that splits the light into various components known as spectrum.

The way the astronomers could use this concept to know what was happening in the galaxies before is by examining the spectra of galaxies that have the highest redshifts.

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First, as you may know, the light travels at a given velocity.

In vaccum, this velocity is c = 3x10^8 m/s.

And we know that:

distance = velocity*time

Now, if some object (like a star ) is really far away, the light that comes from that star may take years to reach the Earth.

This means that the images that the astronomers see today, actually happened years and years ago (So the night sky is like a picture of the "past" of the universe)

Also, for example, if an astronomer sees some particular thing, he can apply a model (a "simplification" of some phenomena that is used to simplify it an explain it) and with the model, the scientist can infer the information of the given thing some time before it was seen.

that would be b i just took the test : )