I assume this is a real procedure for actual synthesis.
Distilling ethanol off does have an effect on the workup of this reaction. Usually one needs to separate the reaction product and educts or side products afterwards by separation between an aqueous and an organic phase. Having ethanol in the mixture prevents the two phases from separating. In order to isolate your product you will need to distill ethanol off before adding water, because water would also be distilled off, if you added it first.
The synthesis adds two carbon units from malonic acid to butyl bromide, followed by a de-carboxylation step, to form caproic acid.
There are 2 reasons:
1. Water and alcohol form an azeotrope, why not recover some absolute ethanol before the second step?
2. Reflux temperature for de-esterification will be higher with a greater percentage of water as ethanol is removed.
Butyl bromide boils around 101 C, so it can be distilled off during KOH reflux. A possible by-product, n-butanol, which boils at 117 C but forms an azeotrope with H2O at 92 C, can also be removed with higher temperatures.
So, alcohols and butyl bromide could be fractionally distilled off during the KOH de-esterification (this technique would be practiced on a lab scale to perfect it), leaving the water soluble malonate adduct for subsequent decarboxylation.
Interestingly, after decarboxylation step, caproic acid could then be extracted back into non-polar solvent for further purification.