Learn Farsi: این حوله نرمه.

In everyday spoken Farsi, the word for "is" (است) is almost always shortened. Because نرم (narm) ends in a consonant, the shortened "is" becomes an "e" sound, which is written by attaching ـه to the end of the adjective.

Wait, the word حوله also ends in ـه. Does that one mean "is" too?

No, the "e" sound at the end of حوله (howle) is just a built-in part of the word for "towel". It can sometimes be tricky to tell the shortened "is" apart from words that naturally end in an "e" sound, but context helps: if it meant "is" here, the sentence would translate to "this is a towel soft", which doesn't make grammatical sense.

Could I easily misread the ending of نرمه as an ezafe?

It is easy to mix them up when listening! However, an ezafe links words into a phrase (like "the soft towel", which would be حوله‌ی نرم), whereas the ـه here is the verb that completes the sentence. Also, the ezafe is almost never written out as a physical letter in the Farsi script unless the preceding word ends in a vowel, unlike this shortened verb.

Since the verb is attached to the adjective, is it still considered to be at the end of the sentence?

Yes! Even though the formal verb است has shrunk down to just an attached ـه, it is still functioning as the main verb at the very end of the sentence, following standard Farsi word order.