Academic progression in Germany, what happens after a postdoc? What is the next step?
I was told that there isn't really a step up from postdoc (like an assistant professor) until you get a professorship (for which you have to do habilitation among other things). 


In Germany, there is generally a greater variety in career paths than, say, in the US, where the vast majority of new full profs have been assistant profs at some point. It's indeed common to go from post-doc to professor (W2 or W3) directly. Other options include a junior professorship (W1), and a "research group leader" position, based on grants like the Emmy Noether and the Heisenberg stipend.

Habilitation is still mandatory in some fields; others will accept "Habilitation-equivalent achievements", like a strong track record in research and teaching.


  If I understand things correctly you can be a postdoc for 12 years (?!) in Germany, and if you're successful (and lucky) you can get a professorship.


The 12 years probably refer to the Wissenschaftszeitvertragsgesetz (WissZeitVG). According to WissZeitVG, you cannot be employed more than 12 years as a scientific assistant, which includes both the pre-doc and post-doc phase, without a specific reason. However, there are various exceptions, including field-specific ones (in Medicine it's 15 years), personal circumstances (you get an extension for each child), and the case that the research institution is willing to hire you permanently (which almost never happens).


  What are the differing qualifications of a junior prof (W1) and a senior postdoc (either E13 or E14)?


A junior professorship is similar to an assistant professorship in the US. The main practical difference is that most junior professorships (90% or so) are not equipped with a tenure track, which makes them considerably less attractive. However, there is now a trend to change this situation towards more tenure-track junior professorships.

In comparison to a post-doc, a junior prof will usually have more teaching duties. The benefits of a junior professorship are the higher prestige, the usually higher salary and the longer time span, typically 6 years (with an intermediate evaluation after 3 years).

Junior profs may also be offered more freedom to build their own research profile. But this really depends on the interpretation of the associated department and research chair, and should be brought up as a topic in the hiring process. I've seen both "glorified post-doc" junior profs that were hired to bring special knowledge to some larger research group, and post-docs who were given the opportunity to build their own small research group.