I thought Tony explained it pretty well. I don't have Steve's manual, but from Tony's description it goes between the galley side of the wall and the 1/2 inch ply fin that compresses the seal. The 1/8 inch moves the 1/2 inch inboard so that it lands in the middle of the 3/4 inch seal channel. The 1/8 inch is trimmed the same as the top of the outside wall (which is why it is hard to see), whereas the 1/2 inch sticks up.
From outside in: Wall + 1/8 ply shim + 1/2 inch ply fin + 1/8 clearance = 3/4 inch seal channel.
If I have misunderstood, I'm sure Tony will offer more clarification.
The only disadvantage I see to this method is it makes for very thick and heavy galley walls. Not necessarily a bad thing for rigidity and keeping the seal alignment stable, but heavy. That's probably why Tony used the option, in the 4 wide build, to just have the 1/2 inch ply be crescent shaped like a hatch rib, instead of a whole galley wall sized sheet. I would think that you could do the 1/8 inch spacer that way too, just a crescent shape, rather than covering the whole wall (like his light colored reference).