The recovery operator $R_{xz}$ is the same one as you would apply when doing quantum state teleporation
$R'^\dagger_{xz}$ will be some combination of Clifford gates and Pauli gates, the latter classically conditioned on the Bell basis measurement outcome.
I think that a single qubit ($n=1$) will be sufficient to demonstrate whats going on here. Let the registers be labelled from top to bottom as $A$, $B$, and $C$ and recall that you can rewrite the initial state (before either $U$ or Bell measurement are performed) as$^1$:
$$\tag{1}
|\alpha\rangle_A\otimes |\Phi_0\rangle_{BC} = \frac{1}{2}\sum_{\ell=0}^3 |\Phi_\ell\rangle_{AB} \otimes \sigma_\ell|\alpha\rangle_C
$$
where $\sigma_\ell$ is a single-qubit Pauli and I am using a Bell basis:
\begin{align} \tag{2a-d}
|\Phi_0\rangle &= \frac{1}{\sqrt{2}} (|00\rangle + |11\rangle)\\
|\Phi_1\rangle &= (\sigma_1\otimes I)|\Phi_0\rangle\\
|\Phi_2\rangle &= i(\sigma_1 \otimes \sigma_3 )|\Phi_0\rangle\\
|\Phi_3\rangle &= (I \otimes \sigma_3 )|\Phi_0\rangle\\
\end{align}
Now $C$ applies $U$ to their system and $AB$ performs the Bell basis measurement. This gives $AB$ knowledge of $\ell\equiv xz$ (two bits!) which they share, leaving the system in the state
$$\tag{3}
|\psi'\rangle_{ABC} = |\Phi_\ell\rangle_{AB} \otimes U\sigma_\ell|\alpha\rangle_C
$$
In this notation we have $\sigma_\ell \equiv R_{xz}$ and if this were vanilla state teleportation we would apply $R_{xz}$ to recover $|\alpha\rangle$ in system $C$. But To recover $U|\alpha\rangle$ we need to apply the specific recovery operation
\begin{align}\tag{4a-c}
|\psi'\rangle_{ABC} &\rightarrow I\otimes I \otimes (U\sigma_\ell U^\dagger)^\dagger |\psi'\rangle_{ABC}
\\&=|\Phi_\ell\rangle_{AB} \otimes U\sigma_\ell U^\dagger U\sigma_\ell|\alpha\rangle_C
\\&=|\Phi_\ell\rangle_{AB} \otimes U|\alpha\rangle_C
\end{align}
which recovers the desired final state and demonstrates that the correct recovery operation was $R_{xz}' \equiv U\sigma_\ell U^\dagger $ (its not clear to me why the adjoint is required but I've left it for consistency; it might have something to do with global phases that appear in the Pauli and Clifford groups that are irrelevant in practice).
$U$ is not just any gate, it must belong to the set of gates for which $U \sigma_\ell U^\dagger$ is a Clifford gate. So by construction you are allowed to apply the recovery operation fault-tolerantly and you don't actually apply $U$ at any point after the dashed line in Figure 4.
Example
For $U=T$ the authors provided the recovery operations $T\sigma_\ell T^\dagger$ as
\begin{align}\tag{5a-d}
R'_0 &= I\\
R'_1 &= S\sigma_1\\
R'_2 &= S\sigma_2 \\
R'_3 &= \sigma_3
\end{align}
up to a global phase. So imagine $AB$ measures $\ell = 1$ ($xz=01$ in binary), then starting from Equation (3) we would proceed by applying
\begin{align}\tag{6}
|\Phi_1\rangle_{AB} \otimes T \sigma_1|\alpha\rangle_C \rightarrow |\Phi_1\rangle_{AB} \otimes S\sigma_1 T \sigma_1|\alpha\rangle_C
\end{align}
And we can then compute
\begin{align} \tag{7a-d}
S\sigma_1 T \sigma_1 &\dot{=} \begin{pmatrix} 1 & 0 \\ 0 & i \end{pmatrix} \begin{pmatrix} 0 & 1 \\ 1 & 0 \end{pmatrix} \begin{pmatrix} 1 & 0 \\ 0 & e^{i\pi / 4}\end{pmatrix} \begin{pmatrix} 0 & 1 \\ 1 & 0 \end{pmatrix} \\
&= \begin{pmatrix} 0 & 1 \\ i & 0 \end{pmatrix} \begin{pmatrix} 0 & 1 \\ e^{i\pi / 4} & 0 \end{pmatrix} \\
&= \begin{pmatrix} e^{i\pi/4} & 0 \\ 0 & i \end{pmatrix} \\
&\dot{=} e^{-i\pi/4} T
\end{align}
where I've intentionally applied $R_{xz}'$ instead of $R_{xz}'^\dagger$ to demonstrate that it still works up to global phase.
$^1$ To derive this identity, start by rewriting the computational basis states like this:
\begin{align}
|00\rangle &= \frac{1}{2} \left[(|00\rangle + |11\rangle) + (|00\rangle - |11\rangle)\right]
\end{align}
and so
\begin{align}
|00\rangle &= \frac{1}{\sqrt{2}} \left(|\Phi_0\rangle + |\Phi_3\rangle\right)\\
|01\rangle &= \frac{1}{\sqrt{2}} \left(|\Phi_1\rangle +i|\Phi_2\rangle\right)\\
|10\rangle &= \frac{1}{\sqrt{2}} \left(|\Phi_1\rangle -i |\Phi_2\rangle\right)\\
|11\rangle &= \frac{1}{\sqrt{2}} \left(|\Phi_0\rangle - |\Phi_3\rangle\right)
\end{align}
Then for a general single-qubit state $|\alpha\rangle = a|0\rangle + b|1\rangle$ we have
\begin{align}
|\alpha\rangle |\Phi_0\rangle &= \frac{1}{\sqrt{2}}(a|0\rangle + b|1\rangle)(|00\rangle + |11\rangle)\\
&= \frac{1}{\sqrt{2}} (a|\color{red}{00}0\rangle + a|\color{red}{01}1\rangle + b|\color{red}{10}0\rangle + b|\color{red}{11}1\rangle)\\
&= \frac{1}{2} \left(\color{red}{\left(|\Phi_0\rangle + |\Phi_3\rangle\right)} a|0\rangle + \color{red}{\left(|\Phi_1\rangle +i|\Phi_2\rangle\right)}a|1\rangle + \color{red}{\left(|\Phi_1\rangle -i |\Phi_2\rangle\right)}b|0\rangle + \color{red}{\left(|\Phi_0\rangle - |\Phi_3\rangle\right)}b|1\rangle \right)\\
&= \frac{1}{2} \left(|\Phi_0\rangle (a|0\rangle + b|1\rangle) + |\Phi_1\rangle (a|1\rangle + b|0\rangle) + |\Phi_2\rangle (ia|1\rangle - ib|0\rangle) + |\Phi_3\rangle (a|0\rangle - b|1\rangle) \right)\\
&= \frac{1}{2} \left(|\Phi_0\rangle \sigma_0 |\alpha\rangle + |\Phi_1\rangle \sigma_1 |\alpha\rangle + |\Phi_2\rangle \sigma_2 |\alpha\rangle + |\Phi_3\rangle \sigma_3 |\alpha\rangle \right)\\
&=\frac{1}{2}\sum_{\ell=0}^3 |\Phi_\ell\rangle \otimes \sigma_\ell|\alpha\rangle
\end{align}
which recovers the desired expression.