Let $f \colon \overline{G} \to G/N$ denote the isomorphism guaranteed by the First Isomorphism Theorem. When the author writes "this identification carries $\overline{K}$ to the image of $K$ in $G/N$, namely $K/N$" what they mean is that
$$f(\overline{K}) = K/N \subset G/N.$$
You should check that this is true, and that in fact the restriction $f|_{\overline{K}} \colon \overline{K} \to K/N$ is a group isomorphism as well.
Hint: You should write down explicitly what $f$ does, and be careful checking that various things are well-defined.
In general it is not true that $A \cong B$ and $C \cong D$ imply $A/C \cong B/D.$ However, in this case, since one isomorphism $f \colon \overline{K} \to K/N$ is the restriction of the other $f \colon \overline{G} \to G/N$, this statement is true. Let's prove this:
Lemma If $A, C$ are groups and $B \subseteq A$, $D \subseteq C$ normal subgroups, and if $f \colon A \to C$ is an isomorphism such that $f|_{B} \colon B \to D$ is also an isomorphism, then
$$A/B \cong C/D.$$
Proof: The obvious isomorphism $\overline{f}$ is as follows: you take an element $aB$ of $A/B$, and you send it to $f(a)D.$ But we need to check that this is well-defined.
If you give me $a, a' \in A$ such that $aB = a'B$, is it true that $f(a)D = f(a')D?$ Well, if $aB = a'B$, then $a^{-1}a' \in B,$ and thus $f(a^{-1}a') \in f(B) = D$. Therefore, we have
$$f(a')D = f(a)f(a)^{-1}f(a')D = f(a)f(a^{-1}a')D = f(a)D,$$ where $f(a^{-1}a')D$ is the identity because $f(a^{-1}a') \in D.$
So, $\overline{f}$ is indeed well-defined. Why is it an isomorphism?
It is a group homomorphism because given any $a, a' \in A$, we have
$$\overline{f}(aBa'B) = \overline{f}((aa')B) = f(aa')D = f(a)f(a')D = f(a)Df(a')D = \overline{f}(aB)\overline{f}(a'B).$$
It's injective because if $aB \in A/B$ is sent to the identity $D$ of $C/D$, then we have
$$D = \overline{f}(aB) = f(a)D,$$ hence $f(a) \in D$. Since $f$ restricts to an isomorphism from $B$ to $D$, it is a bijection from $B$ to $D$ as well, so it follows that $a$ must be in $B.$ So, we have $aB = B,$ which means that the only element sent to the identity $D$ is the identity $B$ of $A/B$.
It's surjective because for any $cD$ in $C/D$, there exists $a \in A$ such that $f(a) = c$ (because $f$ is an isomorphism), and thus $\overline{f}(aB) = cD.$
So, we've shown that $\overline{f}$ is an isomorphism, and we're done.
Now, we know that $f \colon \overline{G} \to G/N$ is an isomorphism, and it restricts to an isomorphism $\overline{K} \to K/N$. By the Lemma, we have
$$\overline{G}/\overline{K} \cong (G/N)/(K/N),$$ as desired.