"You are reading at night."
Translation:Du liest nachts.
"am" is a contraction of "an" and "dem", with "dem" being the dative masculine and neuter definite article, but "Nacht" is feminine, so you can't use "am" here. Also, the preposition "an" isn't generally used for "night" like this.
Wouldn't "you are reading at night" usually imply that you are currently reading? (I know in some cases you could say it to mean you do it constantly). I understood nachts to mean it happens regularly, but am I mistaken?
I agree: the prompt is confusing because the present progressive tense is not found in German. 'du liest nachts' implies custom/habit. 'du liest heute nacht' means you are reading tonight as in right now, or as in an implied directive.