The measurements are correct. Remember that it's the FINISHED size that is twice as wide as it is high. The cut rectangle is 2 3/4 by 5 inches. With 1/4 inch seam on every side, that means that finished, it's 2 1/4 by 4 1/2. Two times 2 1/4 IS 4 1/2.
Would have been easier to see if it had been 2 by 4 finished or even 2.5 by 5. Those pesky fractions are still getting to us, aren't they?
And you're right, the illustration is misleading. Using 2 3/4 inch squares will put the point 1/4 inch away from the edge, not ON the edge like the picture shows.
Go for it! Looks like a cute pattern!