Todo duerme: This phrase can be translated as "all sleep" or "everyone sleeps." Note that todo is treated as a collective noun here, much like the singular word gente is treated as a singular word even though it has has the plural meaning of "people."
Derredor: You won't find this word listed except in larger dictionaries. In this context, it refers to the outskirts of an area, or the area surrounding something else.
Esparcen: The verb esparcir generally means "to spread" or "to scatter."
Velan: The verb velar isn't particularly common. In this context it means "to keep watch" or "to take care."
Pastores: A pastor in this context isn't a pastor, but a shepherd (although the word nowadays can also refer to a minister). In both English and Spanish the word originally means "shepherd," but its meaning was broadened to include people who were appointed to watch over a "flock" of believers. Pastor comes from an ancient Indo-European root meaning "to protect" or "to feed." Related English words include "pasture," "pester" and even "food" and "foster."
Oscuridad: It shouldn't be surprising that one meaning of this word is "obscurity." But it more often means "darkness."
Belén: This is the Spanish word for Bethlehem.