Google finds turns up exactly one instance of this sentence being used anywhere on the Internet, and it is in this very thread on Duolingo. Please, course developers, don't invent garbage sentences that nobody would ever say or write and expect us to learn from them. They just waste our time trying to translate improbable Hungarian into improbable English.
Perhaps if you knew that people were looking at a particular planet or star but you didn't know exactly where to look, you might ask "Where are we looking?" but I can't imagine an English speaker adding "up" at the end of the question. "What are we looking up at?" is a meaningful English sentence, but it doesn't work with "Where" in place of "What".
Yes, realistically "Where are we looking?" is the equivalent English sentence, and if I were doing a professional translation that's how I would translate it, but Hungarian naturally includes more information in such sentences, and in an educational context it's important we learn that, even if representing our understanding in English is awkward.