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I promoted my self to challenging and as German start off with too few troops in East to even be fluid??? What is that all about?

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Challenging level reduces morale and thus CV of units, also in EF.

ok... I guess I do not understand,
If you leave the EF the lower end do you not automatically lose the game as Germans?

The lower your EFB combat value the more likely the Russians are to advance and the more casualties you take. There is no auto loss, the Russians still have to clank their way across Poland. They will just do it a lot faster against less german defenders

No you won't automatically lose, it's just that the game starts during the summer, when the Soviet potential is very high (meaning they are preparing for an offensive) and thus the higher CV reqs in order to keep them from advancing. The CV requirement will change and most likely drop with time as the front narrows and the weather changes.