When do you know to say this and when to say "Li faras sian laboron" or is that any difference?
"Li estas faranta sian laboron" is more specific, emphasising that his work is on-going right now.
You could also say the more general "Li faras sian laboron".
"Li faras sian laboron" can also be used more widely, such as to talk about recurring acts ("Every Monday, he does his work"), like with the simple present in English.
So there is a difference but, roughly speaking, it's that one is "broader" than the other -- whenever you can use the narrower one, you could also use the wider one, but not necessarily the other way around.
You would usually only say "Li faras sian laboron", sentences like this are only to teach you that the participles exist and how they are used.
So basically, it's the difference between saying, "He works" and "He is working (right now)".
Not really, because in English "he works" cannot be used when "he is working (right now)" is appropriate, but in Esperanto, it can.
"What does John do now? He reads a book." can't be a question about the present time but only about general habits, but in Esperanto it can mean either that or "What is John doing now? He is reading a book."
The "esti laboranta" method can only be the "is working (right now)" meaning.
Honestly I don't think I would ever say "Li estas faranta sian laboron." If I want to emphasise that he's doing the work right now, I would rather say something like "Li nun faras sian laboron".
Is there really a difference between doing "his work" and doing "his job". I've always answered "laboron" as work, but decided to try "job" as that seemed a more natural English translation... but Duolingo didn't like that answer.