Here is the setup with which you are dealing: You have a smooth closed manifold $M$ and a finite cyclic branched covering $p: M\to M'$ ramified over a codimension 2 totally geodesic submanifold $V'\subset M'$, where $M'$ is hyperbolic. Let $V=p^{-1}(V')$. Furthermore, you know (from the construction) that $p: V\to V'$ is a diffeomorphism. In particular, $V$ is diffeomorphic to a closed hyperbolic manifold $V'$. Let $\beta$ denote the generator of the deck group of $p$. Now, you are trying to prove that the topological manifold $M$ does not admit a hyperbolic metric $g$. Suppose it does (smooth structure might change at this point). Then, by Mostow Rigidity theorem, $\beta: M\to M$ is homotopic to an isometry $\alpha: (M,g)\to (M,g)$. In particular, the fixed-point set $F$ of $\alpha$ is a closed hyperbolic submanifold. Note that $V$ is typically not connected, so you have to argue for each component $V_j$ of $V$. First, you note that each inclusion map $V_j\to M$ is $\pi_1$-injective (since this is the case for $V'$). Next, let's lift everything to the universal cover of $M$, which is supposed to be the hyperbolic $n$-space $H^n$, $M=H^n/\Gamma$. Then the lifts $\tilde\beta, \tilde\alpha$ can be chosen so that they agree on the sphere at infinity. The subgroup $\pi_1(V_j)\subset \Gamma$ consists of elements which commute with $\tilde\beta$. The same applies to $\pi_1(F_j)$ and to $\tilde\alpha$. Therefore, we have a natural isomorphism $\pi_1(V_j)\cong \pi_1(F_j)$. By construction, $V$ is diffeomorphic to $V'$, so $V_j$ is diffeomorphic to a hyperbolic manifold. Now, it follows from Mostow rigidity (if $dim(V)\ge 3$) or classification of surfaces (if $dim(V)=2$) that $V_j$ is diffeomorphic to $F_j$, since they are both diffeomorphic to hyperbolic manifolds with isomorphic fundamental groups.
With a bit more care, the same argument goes through if you merely assume that $M$ is homotopy-equivalent to a hyperbolic manifold.
Now, one can ask if something stronger holds: Let $M$ be a closed hyperbolic manifold and $\beta: M\to M$ be a finite order diffeomorphism. Let $\alpha: M\to M$ be an isometry homotopic to $\beta$. Is it true that fixed-point sets of $\alpha, \beta$ are diffeomorphic?
Note that both orbifold $M/(\alpha), M/(\beta)$ are aspherical and have isomorphic fundamental groups. In dimension 3 it suffices to conclude that they are diffeomorphic. In dimensions $\ge 5$, it probably follows from some equivariant form of Farrel and Jones
but I am not sure (I have not looked at their papers for a long time). Situations in smooth category and dimension 4 seem totally unclear.
Lastly: The paper you are reading has two constructions of negatively curved manifolds not homotopy-equivalent to locally symmetric ones. The second construction is less known since people usually get tired from reading the first one. Some details for the second construction could be found here. Namely, I explain why manifolds in the 2nd construction are not homotopy-equivalent to hyperbolic ones.
