Hi all! Yet again a rules question to the community. Hope you have patience with me.

After Encounter Mode have ended - what do you do with any Fatigue and Stress the characters still have affecting them? Does that Fatigue and Stress end up becoming "long-time" that can only be removed by a nights rest? Are the rules leaving something out?

At the end of an episode or encounter, characters immediately recover from some of their fatigue and stress. A character recovers from a number of fatigue tokens equal to his Toughness, and recovers from a number of stress tokens equal to his Willpower. (Player's guide p. 85)

So if there's any left?

while fatigue and stress generally come and go quickly in encounter mode, GMs are encouraged to limit the recovery of fatigue and stress in story mode. (player's guide again, same page)

So it's up to interpretation. The most literal interpretation reads as you write, a night's rest is needed to remove the remaining fatigue and stress. But you'll probably find that there's lots of house rules about this. Most of them aim to limit the recovery of stress and fatigue in one way or another.

Personally, I skip the end of encounter recovery so fatigue and stress are more serious issues than they'd otherwise be. That's not by the book. But it's gritty.

I'm having some problems with this as well. Running An Eye for an Eye and the second chapter is essentially one long story mode session. The PCs have a lot of fatigue and stress now and I'm not sure how to let them recover some. Insert a rally step?

Now, we stopped in the middle of the chapter and I'm wondering how to start up the new session. They should get all their fate points back as I understand. What about stress and fatigue?

By the way, I find stress and fatigue to be awesome GM tools. They really add flavor and I find all sorts of reasons to hand them out. And party tension. Last session one of the players remarked how creepy the wind was that evening and I increased party tension. Morslieb is full after all.

I would let them recover 1-2 fatigue or stress, but during story mode this means at some point they may just need to take a nap...

I'd either do as Emirikol says, or call for a rally step after the session has started when the characters are gathered together, discussing what to do, or when the action starts (next time you go to encounter mode).

The advantages of calling for a rally step is that the player's might get a chance to do some other things too (use the inspiring words-action, perhaps?) and that those times when you don't feel it's necessary to let the pc:s catch their breath, they won't just expect you to let them do that at the start of each session.