You are on the right track. In the sentence

-Tu as encore lu le dernier chapitre du livre ?

-Ben non, je n’en suis pas là.

The word en is used to avoid repeating the words le dernier chapitre because we can also say:

-Ben non, je n’ai pas lu le dernier chapitre.

In addition, we would add the word encore because it helps to mention that we are not there yet

-Ben non, je n’en suis pas encore là.

You are absolutely on the right track.

En refers to something already known which is reachable: a step, a level, a skill, etc.

Note that the question uses the wrong adverb. That should be:

Tu as déjà lu le dernier chapitre du livre ?

Encore would mean “did you read the last chapter again ?”.

The first sentence is not correct; what is meant instead, taking the second sentence as correct and therefore determining the context, is expressed as follows;

• Tu n’as pas encore lu le dernier chapitre du livre ? or
• Tu n’as toujours pas lu le dernier chapitre du livre ?

No, I believe you are mistaken. “Là” does mean “the last chapter”. “Là” is an all-purpose pronoun of the French language; “en” also is a difficult pronoun. Here “en” means the understated occupation of reading or reading that particular book the two persons are conscious of ; what “en” stands for is only globally defined, it can be more or less specific but no one insists on too much detail : it is sufficient that it should be pertinent to the situation at hand ; what is being replaced is defined through sheer common sense; this is a matter of common sense, of course, only after you have acquired a feel for the use of “en” (I do not imply that understanding the process of replacement should be a matter of plain common sense, it is difficult for everyone and no less for the French). So, this global characterisation that “en” will stand for could be “la lecture” or “ma lecture” or “la lecture de
…” or if this is a re-reading, “ma relecture …” etc. A key word is “lecture”, what common sense shows to be the occupation under consideration. In a developped fashion what is being said is this;

• Ben, dans la progression de ma lecture (du livre, de “Alice au pays des merveilles”, etc;)(en) je ne suis pas au (point du) dernier chapitre (or au point de la lecture du dernier chapitre) (là).