(A related point is the use of "physical" in Phase 2 to describe lines. I think that's incorrect, since we're talking about backslashes and new-lines, which are post-mapping characters and might be different characters or, in the case of a new-line, not present at all in the physical source file. I think it's fine to just talk about "source" in Phase 2 and drop "physical" altogether.)
My second comment regards new-line characters and end-of-line indicators. As I understand it, there are two real-world scenarios the existing wording is intended to cover: cases where different characters or sequences (CR, CRLF) are used instead of new-lines, and record-oriented files where there is no character at the end of a line. The word "introducing" is appropriate for the latter case, but it seems incongruous for the former. Could we replace that phrase with "representing end-of-line indicators as new-line characters"?