(1) While proving Theorem 10.1, Munkres talks about non-empty, finite, ordered sets - Does he mean simply ordered set? If so, don't simply ordered set already have an order relation on them which can automatically be used to show them being well-ordered?
(2) Why does he talk about largest elements in the set? Why not smallest?
Its very confusing...
Yes, he is talking about linearly (or simply) ordered sets. In order to show that the linear order is actually a well-order, you’d have to show that every non-empty subset of the set had a least element with respect to the linear order. That can be done in much the same way that Munkres shows that every finite linearly ordered set has a greatest element, but he wants to prove more than just that the set is well-ordered: he wants to prove specifically that it has the order type of a section of $\Bbb Z_+$.
That proof could be done by showing that every finite linearly ordered set has a least element, but the induction step would be just a little messier; he’s chosen the simpler approach. The other version would go as follows, where I follow his language as closely as possible.