Okay, let me see if I can explain this electronically - it would be easier if I could show you in person
A is the diamond, B is the small triangle, and C is the 1/2 square triangle that when paired up with another 1/2 square triangle they create the block's corner pieces to form a square.
The step 2 instructions are confusing. Basically, I would break the block into quarters and then repeat the process to form 1/4 of the block = 4 squares consisting of A, B, & C pieces. When the 4 squares are sewn together you get the block shown.
Step 2: Place piece A right side up with longest points of the piece facing North / South. Place piece B right side down on top of piece A with the longest side of B on one of the top sides of the diamond and being the seam to sew. On the first pair of A & B - the B triangle should point left (as shown in the instructions), on the second pair of A & B the B triangle should point right (still with A & B right sides together). Sew the seam across the top of B on the long side of the B triangle (for both B facing directions). This should create a mirror image that you can piece side by side to create a quarter of the block (after you sew on pieces C).
Step 3: Iron seam open (so you see all right sides and a seam) by leaving piece A on the bottom, and pushing the iron toward the seam and folding piece open and ironing across side B. When you flip the sewn / ironed piece over you should see the seam on the back ironed over the B side (not on the A side and the seam should not be ironed split open across both sides).
Step 4: The picture next to step 4 is confusing because it shows B & A sewn but not ironed open (as the instructions tell you to do). Ignore the photo. Sew one of the short sides of the C piece to the side of the diamond across from where you sewed piece B with right sides together (again place the diamond facing North / South and then you should have one piece with B on the right and one piece with B on the left. On the A/B piece with B on the left, sew piece C onto the right. On the A/B piece with B on the right, sew piece C onto the left.
Iron open by pushing the iron across the right side of A across the seam and over C. When you flip the ironed sewn piece over, you should see the whole diamond and only part of C and B (as the folded seam is on top of the B & C pieces). You should now have two right triangles with piece B forming the right angle of the triangle. The two completed A/B/C triangles should be mirror images of each other.
Step 5: Place the longest sides of the triangles together (as a mirror image) and then place one triangle on top of the other (right sides together) so that the Bs are on top of each other and the As are on top of each other, and the Cs are on top of each other. Sew a seam on the longest side of the triangle (A/C side). You should now have a square that will build 1/4 of the block shown at top of pattern directions. Repeat steps 1-5 three more and sew all four squares together to complete one block.
To reduce bulk when assembling the four quarters of the completed block, I would press the last seam (from step 5) open across both sides (otherwise the center of your block will pucker up from all the seam bulk). Or you can press all center seams (step 5) the same direction so that when the block is finished, the seams rotate the same direction like a pinwheel on the back.
Hope this helps!