The logon prompt will appear during the previous step, but it begins the final step in the boot-up process. A boot is not considered successful or completed until a user logs in.
After a successful logon, the Clone control set from Step 4 is copied to the LastKnownGood control set.
This makes it available as an advanced boot option in the later half of Step 2 for the next boot.
What this means is that if you install a bad device driver that renders your computer unbootable, you can press F8 during Step 2, and choose to use the LastKnownGood control set.
Since this control set was created before you installed the bad driver, your system will load without trying to start the driver, allowing you to boot successfully.