This question has more than one meaning, depending on the context and thus can be answered differently. On the one hand, it is asking for the other person's location. The answer requires identifying a physical place. For example, Jane is waiting at school for her friend Mary who has not yet arrived. Jane calls Mary on her cell phone and asks, "where are you now?" "Now" emphasizes that she wants to know WHERE Mary is at that very moment. Jane could say, "I am still home, getting ready and haven't left yet," or, "I'm only a few blocks away and will be there shortly." If Mary only says, "I'm getting ready for school," this doesn't directly answer the question WHERE she is. (Is she at a friend's or relative's house,?) Mary provides information about WHAT she is doing, not WHERE. It would be preferable for Mary to start by saying where she is first and then -- if she wants -- she can add what she is doing, "I am still home, getting ready to go to school."
On the other hand, "Where are you now?" can also be used metaphorically to ask where a person is in a process. For example, a manager approaches an employee to check up on the progress on a complicated project. The employee describes the many problems that have arisen thus far. The manager asks, "where are you now?" that is, at what stage are you in right now regarding this project? What are you specifically doing at present? The employee will then describe what he/she is working on at that moment.