The difference in meaning is subtle. In the second sentence, we assume that he is sitting on the terrace at the moment when the sentence is uttered. At this particular moment, he is sitting on the terrace. In the first one, we can't be sure when the action happened.

It doesn't matter much. The difference is small. Here is what flashes through my mind when I read each sentence. "Hе fіnіshеd hіs work and sat on the terrace." He's in the garden. He puts his gardening tools in the shed. He walks to the terrace. He sits down on a chair. We are focussed on the act of sitting. We are thinking of the actual instant he puts his weight on the seat of the chair. "He finished his work and was sitting on the terrace:" He is relaxing in a chair on the terrace. That's the only picture in my mind. We know that he has been working. He remembers that he was working a few minutes ago. But the sentence is just about the sitting. He is already sitting, he has been sitting for a few minutes, he has already made himself comfortable in the chair.