Yes, you have the right of it. Narratively it would be something like “we’ve made all the space for a Medbay Module, but we’re using subpar equipment to make it through this. However, once we’ve spent the XP, we’ll have gone through all the necessary steps to gather equipment, stock the shelves with disposibles, and whatnot.”
While this has nothing to do with the question asked, but it does bring to mind a particular facet of the game that isn’t immediately apparent: narratively changing the situation to mechanically change the challenge.
For instance, we’re going to say the crew has Sworn a Vow to take down the Great White Hydra of Something-9. The Great White Hydra is an Epic foe. Mechanically, this means that when facing it in combat, you’re only marking a single tick (of the 3 needed to fill a box) when you Strike or Clash with it in combat. Sounds insurmountable, right?
So what do you do when facing insurmountable odds? Perhaps you research the Hydra, learning that it fears fire and so acquire some thermal weaponry? Great, you’ve just gotten a narrative advantage. Mechanically, that means that the foe is now slightly less threatening and is probably only an Extreme threat.
But what if you go further, and call in that favor the mercenaries from Elsewhere-2 to help you storm the Hydra’s lair? More advantages and may lead to the Hydra only being a Formidable challenge (now you’re filling a whole box whenever you Clash or Strike against it).
Obviously, lowering the challenge of a threat needs to make sense in order to warrant it. If you’re trying to talk down the Pirate King of the Lost Astroid Belt and you research to learn that the Pirate King is from a generational ship, that doesn’t exactly make things easier. Digging deeper to learn a custom of the people of the generational ship that you can then twist to your advantage in negotiations with the Pirate King, however? Now that sounds like it’ll help and make the task a bit less overwhelming.
All this also helps you progress those high difficulty Vows as well. Learning about the Pirate King’s past definitely sounds like making progress on your Vow (which hasn’t gotten any less Extreme, even if your foe has).