Given a topological space $X$, in the definition I'm using (from John Lee's Introduction to Topological Manifolds), the quotient space $X/A$ formed by collapsing $A$ to a point, requires $A$ to be a subset of $X$.
The following passage is taken from Algebraic Topology by Allen Hatcher
Now there seems to be a few technicalities in the definition that I can't quite wrap my head around.
Given two topological spaces $X$ and $Y$, and base points $x_0 \in X$ and $y_0 \in Y$ we first define the disjoint union to be $X \sqcup Y = \{(\alpha, 1) \ | \alpha \in X \} \cup \{(\alpha, 1) \ | \alpha \in Y \}$ and then we define the wedge product to be $$X \vee Y = X \sqcup Y / \{(x_0, 1), (y_0, 2)\} = \{ [(x_0, 1)]\} \cup \left\{[x'] \ | \ x' \in X \sqcup Y\right\}$$
Then $X \vee Y$, set-theoretically is a partition of $X \sqcup Y$, and this brings about a big set-theoretic issue. Based on my definition right at the start of this page $X \times Y / X \vee Y$ is not defined because $X \vee Y$ is not a subset of $X \times Y$.
It could turn out that $X \vee Y$ is bijective to some subset of $X \times Y$ (and I'm sure this is the case), so if $f : X \vee Y \to X \times Y$ is some bijection, then are the authors forming the smash product as the following? $$X \times Y / f\left[X \vee Y\right]$$

Hatcher already explained how $X\vee Y$ (defined classically as the disjoint union with two points collapsed) is a subset of $X\times Y$. You even quoted him yourself!
To be more precise: let $x_0\in X$ and $y_0\in Y$ be fixed points and consider
$$f:X\sqcup Y\to X\times\{y_0\}\cup\{x_0\}\times Y$$ $$f(x,1)=(x,y_0)$$ $$f(y,2)=(x_0, y)$$
You can easily verify that this is a quotient map. So now if $v,w\in X\sqcup Y$ then we have $v\sim w$ if and only if $f(v)=f(w)$. You can easily see that $\sim$ coincides with $\{(x_0,1), (y_0,2)\}$ collapse and so
$$(X\sqcup Y)/\sim=(X\sqcup Y)/\{(x_0,1), (y_0,2)\}=X\vee Y$$
But thanks to general topology we know that quotient maps induce homeomorphisms from $\sim$ relation:
$$F:X\vee Y \to X\times\{y_0\}\cup\{x_0\}\times Y$$ $$F([v]_\sim)=f(v)$$
In that way $X\vee Y$ becomes $X\times\{y_0\}\cup\{x_0\}\times Y$.
Yes and no. For Hatcher $X\vee Y:=X\times\{y_0\}\cup\{x_0\}\times Y$ is simply a definition, so indeed it is a subset of $X\times Y$ to begin with. But if you start from the disjoint union definition then yes, with $f:=F$ as defined by me earlier.