I seem to have a misunderstanding about quotient groups. Let $D_{2n}$ denote the group of symmetries of an $n$-gon and let $V_4$ denote the Klein-4 group. On one hand, if we identify $r^2$ with $1$, we have $$D_8/\langle r^2\rangle=\lbrace 1,r,s,sr\rbrace$$ which is $V_4$.
On the other hand, using the definition of the quotient group as the set of left cosets, $$D_8/\langle r^2\rangle=\Big\lbrace g\lbrace 1,r^2\rbrace :g\in D_8 \Big\rbrace=\Big\lbrace \lbrace 1,r^2\rbrace, \lbrace r,r^3\rbrace,\lbrace s,sr^2\rbrace, \lbrace sr,sr^3\rbrace \Big\rbrace$$
In the latter set, I am not identifying $r^2$ with $1$ since the definition of cosets or quotient spaces does not require me to (by definition, $G/K=\lbrace gK:g\in G\rbrace$). However, none of these elements appears to be the identity, and the second entry squared, $\lbrace r^2,r^2\rbrace$, doesn't even belong to the set. Where am I going wrong? Is one allowed to replace $r^2$ with 1 in the latter approach?
EDIT: $D_8=\langle r,s:r^4=s^2=1, rs=sr^3\rangle$, so $r$ denotes the rotation and $s$ denotes the reflection.
when multiplying two complexes (subsets) $A,B \subset G$ the result is: $$ AB=\{ab|a \in A,b \in B\} $$ so for your problem case: $$ \{r,r^3\}^2 = \{rr,rr^3,r^3r,r^3r^3\} =\{r^2,1,1,r^2\}=\{1,r^2\} $$