Translation:The whole family is hiding in the forest.
As a literal translation yes, but translation is not about preserving parallel structures at the expense of meaning.
"Is hiding" and "is in hiding" have quite different connotations in English. "Is in hiding" sounds more like someone is trying to hide from society, public scrutiny or threats of danger"
You wouldn't say someone is "in hiding" during a simple friendly game of hide and seek, or if they're hiding from a bear. "The whole family is in hiding in the forest," instead sounds as if the family has moved to the forest to drop off the radar and escape persecution from other people.
I can't speak for the connotations of olla piilossa in Finnish, but I trust that the course creators haven't taught us the weird phrase "in hiding" in Finnish and passed it off as the easy way to say "hide".