。
She was absorbed in grading the exam papers.
Literal
She [topic-は] exam-papers [possessive-の] grading [in-に] was-engrossed.
没頭する ('to be absorbed/engrossed') is a fairly formal verb — 夢中になる would be its casual equivalent. 答案の採点 ('grading of exam papers') uses two Sino-Japanese compound nouns: 答案 (answer sheet/exam paper) and 採点 (grading/marking). The ~ていた form captures the ongoing state of being absorbed at that point in time.