That sounds like they want you to applique and quilt it at the same time.
Usually when you sew applique on, you're stitching it only to the quilt top (yes, even if it's fused on). Then you add the batting and backing, and quilt it all together. But there is no "right" or "wrong" way, it's personal preference. I agree with the observation that if you do it as the instructions direct, your turtles will be puffy.