As per the title, I can't quite see how the upward palm block has any advantage over a normal middle block.
If you are familiar with the ITF patterns it is often used as a direct defence for a fixed stance punch type attack (3rd move from Won-Hyo).
Generally it can be used for any belt line attack - and depending on the positioning and type of attack can sometimes be more desirable than a downward palm block (2 of these at the end of Joong-Gun) For example: knocking a kick upwards may knock the opponent off balance - whilst knocking it downwards may put it straight into your legs (depending on your current positioning).
In your 2 step - as @AndyJeffries explains - the upwards block should leave you in a reasonable position to manipulate the attackers arm after removing the focus of the punch.
It also puts your body in the correct position for the attacker to do their turning kick to a sensible target and gives you chance to practice a block that appears in your patterns (start of Joong-Gun) against a live target.
Note that it is common when doing this in practice to take the block too high - this is one of the reasons it is in 2-step and patterns at a similar grade, giving the instructors/examiners more chance to see and correct this.
We often use the same block in Kukki-Taekwondo during one step sparring for defending against a punch so then we can easily grab the underside of their punching wrist, from there we can quickly apply arm/wrist locks. This is changing in the amount it's used with the new Kukkiwon one step syllabus being more self-defence focused (rather than technical), but still...
If you have the full encyclopedia, you'll find further details and illustrations of applications for this technique in the description of Joong Gun Hyung, Vol 9 pages 216 and 222. It's noteworthy that the text says "the palm reaches the target in a circular motion", and one of the photos shows a dotted line tracing the motion of the hand: it should be brought about a hand span in front of the blocking shoulder as the body's squared while stepping the back leg through, then loop outwards to drag an incoming attack outside the line of the body and downwards, circling it inwards again and upwards as the hand comes back on line with the front foot. Dragging the attack sideways first is necessary to stop a kick or punch hitting you, and the circular motion helps unbalance the attacker. You could think of it a bit like a grasping block that doesn't just make a small arc, but loops right round from maybe 11pm on a clock to maybe 8pm, clockwise, though at the end of the movement the hand's not travelling in a side to side plane but move back-to-front.
That said, if someone has attacked deeply enough to hit you, their arm may be extended too far for you to circle it back on line without dragging the attacking limb into your own side. Sometimes it may be practical to catch a punch closer to to their elbow and have your push more directly shove their upper arm towards their shoulder to unbalance them, in which case their arm will bend as you shove it back into them, allowing you to complete your movement on line. The encyclopedia hints at this application in the way a reverse punch has been deflected and the punching shoulder is raised awkwardly.
It may also be possible to a punching arm outwards and have their fist tuck in near your arm pit as your hand slams up under their elbow. But this is diverting into alternative applications of similar movements, and I believe the focus should always be on understanding the utility for the primary application first - here - blocking.
Another explanation of the block that I was taught at one time - but find no evidence for in the encyclopedia, is to catch an attack coming in from your side and throw it up and forwards. For example, if you were stepping through in joong gun hyung to block with your right hand, imagine someone standing off to your right side, delivering a front kick towards your front thigh: you could catch their kicking leg and scoop it forwards and upwards for you - which will be sideways and de-stabilising for them.
The key to understanding a movement's purpose is to consider the previous movement, the next movement, the other hand, the stance, and your eyeline. Since only the other hand, eyeline, and stance is provided in the photo, there can be many variations.
In this case, consider that the left hand is "chambered" into a fist. I don't like the phrase "chambered" because it suggests the hand or foot is in some sort of ready position; in this case, it is not: it is already grabbing something (note the fist), not waiting for something to happen.
The stance is interesting, too. First understand what a stance is, and what it is not. Despite its name (from "stasis"), it is not a static, unmoving thing, you don't just stand there in a stance and that is that.
No, a stance is a mechanism to move the body from one place to another, and also, to help support the execution of a technique. So a cat (or tiger) stance in this case is called beom-seogi, and it's purpose is to load the weight on the back foot. Why? Because the front foot needs to be able to do something. That "something" depends largely on the next movement, which is not mentioned in the picture, but there could be several possibilities: Perhaps the front foot is readying for a front kick; or it could be wrapping around the opponent's leg so that they cannot get out. Remembering that forms also teach us strategy for pain absorption, it could also be that the leg is injured, and this is a means to keep weight off of it. Other possibilities exist too.
So one possible outcome of this technique (again, without the benefit of knowing the previous and next movements), is that our defender is receiving an opponent's grab with the left/chambering hand (that's why it's in a fist; note also the fist's palm is facing upward which supports the grabbing elbow to point downward), and the palm up is issuing an armbar upwards (the palm is facing up, the grabbing fist wrist is palm up); the stance suggests the front leg could be used to engage the opponent's leg to prevent escape from the armbar, or at least to make it difficult. That the defender is looking forward suggests that the attacker is in front, or that is the direction of his movement. This suggests that the front leg from beom-seogi is probably readying for a sweep, which will be facilitated by the arm-bar.
Now, where do we go from here? That depends on the next movement, but again, the beom-seogi is a hint: it allows us to place weight on the back foot, and not commit one way or another to move forward or backward. With an arm bar secured, the attacker can be swept onto the floor requiring an in-place high-fall; or the defender could raise the arm bar assembly, guide it all over his head, then turn counterclockwise; that exposes the opponent's hand to a reverse grip; or a throw requiring a forward roll), or a throw to the ground. These techniques are basic techniques seen in hapkido and aikido (and the exist in taekwondo!). In the follow-up to the overhead pass, Aikido-ka call the resulting techniques sankyo, ikkyo, or gokkyo; I forget the hapkido names, but they are similarly executed.
But in no case is the technique construed to be a "catch" or "block" of a punch. That is sheer ridiculousness: you don't catch punches, you move off the line of attack, because that punch could be a knife or other weapon. And your timing would have to be so spot-on; otherwise, an overly committed punch could work against you as you both tumble to the ground, or, that you take a very hard punch. Even if you entertained one possibility for a punch block, how do you move off the line of attack in a beom-seogi? This example is definitely not a defense of any kind of punch.
So no, the technique has NOTHING to do with a punch in any way.