I don't understand that direction. I would assume the 4" finished pinwheel block is made from 4 half square triangle blocks. If this is the case then to understand then do what I had to do many years ago to understand the half square triangle concept.
So draw a square 4" and put the diangonal lines in as the finished pin wheel should be.
Each small half square triangle finishes out at 2".
Are You with me.
Then take the 2" square and draw on graft paper.
Put diagonal line. Then put your 1/4" seam allowance all around it. Then on the bottom from the square corner to the diagonal point measure. This will be 2 7/8"
When making triangles into squares you need to add 7/8" instead of the usual 1/2" to compensate for the angle.
So the directions are correct. four squares made of 1/2 square triangles with each triangle cut 2 7/8" will finish at 2 1/2" with seam allowances.