The nRF Cloud FOTA poll library reports progress through callbacks that run in the library's own context. The module forwards each callback as a message on its private channel priv_fota_chan, so all decisions are made in the state machine.
The module uses the library in its non-blocking mode: because it registers a status callback, nrf_cloud_fota_poll_process() starts the download and returns instead of blocking until the image has been downloaded. The call is made from the entry function of STATE_POLLING_FOR_UPDATE, and what it does synchronously is the poll itself: reliable CoAP requests to check for a job and report its status, plus a short wait inside the library after a job update. The download then runs on its own, and the substates that follow are entered from the messages the library's callbacks publish along the way. The watchdog timeout therefore only has to cover the blocking CoAP poll, not a whole download, and matches the Cloud module rather than dwarfing it.
On startup, the module confirms the running MCUboot image with boot_write_img_confirmed(). This marks a newly downloaded image as good, so MCUboot does not revert to the previous one on the next boot. It then publishes FOTA_MODULE_READY.