I'm very curious about this.

Google knows users care about their privacy, and it made the promise in its terms precisely for that reason. People pay attention to this stuff, as the popularity of this story shows.

Therefore, it's generally not going to be in Google's interest to break its own terms.

So what's going on? Did a Google employee simply mess up? Is the reporting not accurate or missing key details, e.g. Google truly is legally prohibited? Or is there some evidence that the Trump administration was putting pressure on Google, e.g. threatening to withhold some contract if this particular person were notified, or if Google continued notifying users belonging to some particular category of subpoenas?

Because Google isn't breaking its own terms just for funsies. There's more to this story, but unfortunately it's not clear what.

A gag order would be from a judge. There would be severe penalties if a party breaks a gag order. A request not to notify is just a request; it has zero legal standing and there would be zero repercussions to ignoring it.