The players have just finished the "Encounter deck reveals 1 card per player." step of the quest phase.
Then the players are looking at the table and seeing that there is 7 Threat Strength on the table and they only have 7 Willpower. So they decide to discard a card and give Eowyn +1 Willpower. Since they are still in the "Player actions" step right after "Encounter deck reveals 1 card per player" it is alright for them to do that. Then they move on to the "Resolve question" step where they actually place the progress token on the quest.
The example could probably be rephrased to more accurately follow the turn sequence but I think it is just fine.