Yes, note the instructions - it is a country in free association with the country of Denmark. In other words, while it is a separate nation (for example it is not a member of the EU, while Denmark is) Denmark still remains responsible for its foreign affairs and defense. This is the same situation as Palau, Marshall Islands and Micronesia, all in free association wiith the US; and Monaco with France, and Andorra with both France and Spain, where its two co-princes are a Spanish bishop and the French president!(!). There are several other examples. I guess that's how tiny nations with little or no army of their own remain sovereign.
Palau, Marshall Islands, Micronesia, Monaco and Andorra are countries but Faroe Islands - not yet. And Faroese situation is more like the situation of for example Curaçao, wich is part of the Kingdom of the Netherlands with Netherland and other Dutch overseas territories. So Faroe Islands is part of the Kingdom of Denmark with Denmark and Greenland.
Is Svalbard a part of Norway or not? It is an autonomous region that is identified as a separate nation by citypopulation.de and appears in the Countries 205 to 242 quiz, which is why we put "excludes Svalbard" in the instructions. But we hear you (!), and we've now treated Svalbard as a part of Norway for the purpose of this quiz, which means that Greenland enters the list and Austria drops off.
Curacao (Aruba and Sint Maarten) are not "overseas territories" - They are countries within the Kingdom of the Netherlands. Loosely the equivalent of any State in the USA. Meaning that though they have their own internal governments, elected Legislature and Prime Minister, they remain subject to Kingdom (read Federal) laws as well. Also, while in the event of war, each island will raise its own Militia, the Kingdom's Armed Forces are ultimately responsible for their defense unless the Netherlands (as in the case of WWII) has no standing armed forces, in which case they are own their own to defend against foreign enemies.
Great quiz, Jerry, but do not forget ÅLAND (Aaland), which is an autonomous island region of Finland between mainlands Finland and Sweden. The distance to Norway is only ca. 300 km.