"And where are they? I pray you tell." She answered, "Seven are we; And two of us at Conway dwell, And two are gone to sea.
"Two of us in the church-yard lie, My sister and my brother; And, in the church-yard cottage, I Dwell near them with my mother."
"You say that two at Conway dwell, And two are gone to sea, Yet ye are seven! I pray you tell, Sweet Maid, how this may be."
As the poem continues, the speaker seems intrigued by the little girl's family. He asks the girl where her siblings are, and she begins her answer by emphatically noting that they "are seven." She's really proud of her six siblings.
She then answers the speaker's question. It turns out that two of the siblings are in Conway (which is a town in Wales). Two more of them are "gone to sea" (perhaps they are sailors or merchants). That's nice, but not exactly excitement central (unless, you know, one of the siblings is a pirate, in which case this part of the poem is most definitely excitement central).
But then the little girl gets to the crux of the question: she tells the speaker that "two of [her siblings] in the church-yard lie." This, as you've probably already guessed, means that they are D-E-A-D. Lying in a church-yard ain't for the living.
She then tells the speaker that she "dwell[s] near" her dead sis and bro, that she lives in the church-yard cottage with her mom.
The speaker is clearly confused by this situation. He starts doing some math. So there's the girl, her sibs in Conway, her sibs who are out to sea, and that total comes to… five. "Yet ye are seven!" he exclaims. In other words: How can this be? Do you need some help with your math?
To sum up (pun intended): the speaker counts only five siblings, but the girl counts seven. And we know why (we can read and count after all): she's counting her dead brother and sister in the "seven." The speaker, though, is not counting them. This raises the question: do the dead count?