Translation:Yesterday we were walking by my girlfriend's house.
The answer to your question should be simple if you are aware of which Duolingo skill set you are studying. This exercise is included in the Duolingo skill set that is dedicated to the Imperfect tense (and the Indicative mood).
Edit: On the other hand, blame Duolingo for a mistake if this same exercise was also placed into the wrong skill set. Perhaps you are experiencing this exercise while working on lessons from an earlier skill set before you have studied the Imperfect tense skill set. If so, then an error has been made.
• Estábamos is the Imperfect tense, which is one of the past tenses.
• Estuvimos is the Preterite tense, which is one of past tenses.
Edit: By the way, just because the featured Spanish sentence of the exercise is referring to yesterday is no excuse for you to reject the Imperfect tense. Who taught you this? Erase this thought from your mind.
I am not a brilliant person. But I can answer your question anyway.
The first thing I want to point out, in regards to your question, is you forgot estábamos while you were typing your post. The "blank to be filled in" is the missing subject pronoun.
Recognizing (identifying) the subject pronoun is easy if you know how to conjugate the verb.
• Estábamos is the first person plural conjugation of the verb, estar, in the Imperfect tense.
I just said "...first person plural...". In other words, we.
Good question! Your question can be paraphrased like this:
Why estábamos instead of éramos ?
Okay... now your (paraphrased) question is asking me to compare two verbs that are both formed in the same tense, the Imperfect tense.
• Estábamos is a conjugation of the verb, estar.
• Éramos is a conjugation of the verb, ser.
Can you all see that the answer to this question depends on which verb is most fitting? Do you believe the most fitting verb is ser or estar ?