Got to say, I agree with Nightrider, it is quite clear.
Just got out my QRH to have a check and yes, you will start the “Engine Fire, Severe Damage or Separation” Checklist with BOTH engines running, but these actions should be memory actions because the condition " If the ENG OVERHEAT light remains illuminated, Accomplish the Engine Fire etc......" is part of the memory actions of the “Engine Overheat” checklist. Then you would start the memory actions for the “Engine Fire, Severe Damage or Separation” checklist.
So in short, as far as I read it, you are going to complete the “Engine Overheat” checklist (all memory actions) the complete the “Engine Fire, Severe Damage or Separation” memory actions and then get your QRH out and start from he beginning i.e the “Engine Overheat” checklist, making sure all the actions have been completed.
Hope this helps.