I've yet to actually be able to play a game of WFRP (something always seems to come up preventing it), but I do think about the game a good deal and read the forums in order to try and solidify the rules in my mind so that when we do play the game goes smoothly.

With that in mind, there is one sort of rule that keeps evading me. I understand Rally Steps to be sort of similar to D&D 4e's short rest system (not exactly, of course, but close). But I don't really understand the timing of them. They're described in in-characters terms as a moment where the characters take a moment to reorient themselves to new modes of action. The one example is when the heroes charge through an enemy's stronghold, and then they finally get to the big bad himself, they take a Rally Step because it might be time for talking rather than fighting, so they re-orient themselves to a new set of tactics.

But I've seen other examples like in the Lure of Power supplement where they say that at a social function a dwarf loses his temper, draws steel and completes an action, then there's a Rally Step and the fighting begins.

I'm just sort of mystified. Is there any hard-and-fast rules as to when a Rally Step happens? If not, when do you guys tend to use them?

They aren't a short rest, they're essentially a break in the action were the players get to take stock of what's going on. Imagine you're in the middle of a giant bar fight with all of your mates, then suddenly, you nut the giant skinhead who's in charge and he goes over like a sack of spuds. So, while all his mates are going "oh crud, 'e's just nutted jimmy," you turn around to your buddies and shout "is everyone alright?"

BAM Rally phase.

Everyone takes a deep breath, settles themselves for a sec, maybe someone runs over and jams an oily rag into a whole in someone's face. But that's all you've got time for because...

BAM The skinheads dive in again and the fight starts with renewed vigour.

A rally phase is that tiny, miniscule break in a fight that allows people to take stock of their situation. A few seconds, nothing more. In story mode or a social situation, it might obviously last a little longer, but try to imply that the PC's still don't have enough time to go and grab a bag of chips. (Of course, they can on real life, that's sort of the secondary purpose of the rally phase.)

A rally step can also be longer time narratively.

It can be the brief pause between waves of foes in a fight. It can be the few minutes between scenes in a city. It can the day between one social engagement and the next. Warhammer 3rd allows very narrative-cinematic approaches to time. The montage scene you see of binding wounds and consulting book can be seconds or hours etc.

Mechanically, they are always the same however. So it's as the story demands.

In the 3 Act structure, they are between Acts. You get at least that respite between them.

E.g., my notes to Players - Quick Guideline Questions:
? Is Initiative (combat or social) rolled? It’s an Act (you will get either Rally or Episode End recovery at its end).
? Did you have a Rally Step and keep Initiative Order? It’s another Act.
? Was there a night’s rest – you always will recover Wounds = To and make Resilience roll for additional recovery on any night’s rest (barring specific effects negating your rest).
? Was Initiative rolled in the past day? If not, you do not recover Fatigue/Stress sleeping tonight. (that is my houserule)

The “three Act” concept means heroes typically experience three intensive scenes in which they make multiple rolls and several risks of fatigue/stress/wounds before a significant opportunity for recovery. Between these scenes is a Rally Step, a limited opportunity for recovery (e.g., support actions).

Three Acts (or a variation this number) form an Episode. Usually Acts follow each other with little transition however in some situations they could last days, weeks or months (e.g., a running chase/fight across country; a series of intense negotiations over 3 days), and rally steps could be variable in length from “a moment’s pause” to “a season passes”.

At the end of an Episode, heroes get to recover Fatigue = To and Stress = Wp. In addition, the first night resting after a day in which an Episode ended also recovers the same amount of Fatigue and Stress.

After that first night, if the next day does not include an Episode, it is Story Mode and nightly rests do not recover Fatigue/Stress [houserule] . Similarly, if Acts take multiple days, nightly rest does not recover Fatigue/Stress.

Story Mode is narrative time between “intensive scenes” and is when player-driven “Interlude” activities occur. Story Mode has no Rally Steps or Episode-end Fatigue/Stress recovery. Rolls in Story Mode are usually “one check” and move on. If days pass in Story Mode, then wounds are healed each morning and recovery checks for Critical Wounds can be made each morning, but Fatigue and Stress are not recovered in Story Mode except by Story Mode activity (e.g., a restful time at the inn).