I was running a test and made a mistake in the sentence "They lived in Germany when they were young." I used Past Continuous instead of Past Simple, that is "They were living in Germany when they were young.". I am wondering if Past Continuous can be used here. If it can be used, what is the difference between the sentences? I was guided by this source: https://dictionary.cambridge.org/grammar/british-grammar/past-continuous-or-past-simple which says that I can use Past Continuous to show an event as ongoing at a time in the past.
Both are correct. The past continuous suggests a temporary state and could be used, for example, if they were not born in Germany but were only passing through.
In other context, if it was not considered to be temporary, then "lived" is more usual.
As a girl, Mary was very familiar with walls. She was living in Germany when she was young. Her father was a Major in the US army and they were posted to West Berlin prior to reunification.
They lived in Germany when they were young. They were living in Germany when they were young.
They lived in Germany when they were young. (this refers to a period of time - their youth)
They were living in Germany when the 2018 Münster attack occurred. (This refers to a moment in time - the attack)
Think of Past Continuous as a line (ongoing event) which is interrupted or which intersects with "a time in the past" (to make it even less ambiguous I would even say "at a point/moment in the past").
In the link you gave, Past Continuous is used in this way as you can see from the examples (in bold you have the point in time that cuts the line of the ongoing event):
- I was listening to the radio when [main event] Helen phoned.
- At 4 pm last Tuesday, I was working in the office.
"When they were young" is not a point in time, but a period of time. To express simultaneity of two ongoing processes you can use Past Continuous, it is true (I was reading, while she was hovering), but the clause "when we were young" indicates a period of time so far in the past, that the most obvious intention of the speaker would be to show that whatever the main clause states is no longer the case, rather than emphasising simultaneity.
However, with more recent past periods, I don't see why the Past Continuous could not be used in this way:
While we were at John's, Maddie was going on about her failures as if it was the first time somebody had ever listened to her.
While we were in France, we were living (staying) in this nice cosy studio by the Seine.
Note that in both last examples, were refers to shorter temporary states or circumstances than in when we were young. When live means having one's home somewhere, rather than temporarily staying somewhere for some time, it is less used in the Past Continuous.
Having said all that, I will not claim that the sentence "They were living in Germany when they were young" is incorrect. It is simply less common.
I looked at the link you used to guide your decision to write "They were living in Germany when they were young." Past continuous is for emotional involvement and past simple is for a simple informative statement. More below.
The Examples from Cambridge Dictionary
You are correct that a writer can choose either the past simple or past continuous. However, a look at the examples they provided indicates that the past continuous is used when the writer wishes to emphasize emotional investment in the moment. The event may otherwise be finished or completed but it is important to appreciate the difficult situation in which the doctors worked, for example. You will agree that one's emotions are grabbed more in the first than in the second of those examples from the Cambridge Dictionary:
Doctors were treating patients in temporary beds and they were trying to do their best in a difficult situation.
Doctors treated patients in temporary beds and they tried to do their best in a difficult situation.
Life in Germany
Likewise, "They were living in Germany when they were young" should in some way be significant emotionally. If I could see the people you are introducing, I would have a better idea. Maybe they are old enough to have experienced the horrible after effects of the Second World War. Extreme poverty, near-starvation, and trauma were widespread. Possibly they are the children of holocaust survivors and grew up with traumatized parents on top of everything else. You are being very polite but you want us to excuse them if they come across as a bit eccentric.
Or maybe they were born in the 1980s and grew up in good homes in a stable economy, but you want to explain that "They lived in Germany when they were young." That's just a simple statement, a simple bit of information to clarify that they did not grow up here. There is no emotionally disturbing past that we need to know about in order to understand these people.
I consider myself a native English speaker, though I learned it in elementary school, and I never gave any thought to the simple and continuous past. It's one of those things one "just knows" when speaking and that marks a non-native speaker. But seeing those examples clarified to me how and why we use the different forms. I hope this helps.