Nordic sweaters (including Icelandic) are typically knitted in the round.
This is a different approach from how we work them in other countries, where we knit flat pieces (front, back, sleeves) then sew them together. The final shape may be more adjusted, more precisely shaped, but the seams create some rigidity.
Nordic sweaters take a completely different approach : they are knitted in the round, and they are (nearly) seamless.
The sleeves are knitted in the round, the body is also knitted in the round.
Some people prefer starting from the top (from the collar) but I prefer the method starting from the bottom (wrists and hips).
Once finished, the sleeves and the body are big tubes.
Of course, some increases are added into the sleeves to have wider upper arms than wrists, and I often add some shaping to the body to have a slightly marked waist.
And then these pieces are knitted together, on a bigger circular needle.
The colorwork from the yoke starts here. It contains decreases, hidden in the pattern, to go from shoulder-width to collar-width.
The only sewing is under the arms, and uses a knit-like stitch which makes it invisible.
This kind of construction can not be made by a machine, it needs to be handknitted.