Let $M$ be a smooth manifold, let $C^{\infty}(M)$ be set of all smooth functions from $M$ to $\mathbb R$ and let $Vec(M)$ denote the set of all vector fields on $M$. A $1$-form on $M$ is a $C^{\infty}(M)$-module homomorphism from $Vec(M)$ to $C^{\infty}(M)$. Let us denote the set of all $1$-forms on $M$ by $\Omega^1(M)$. Then a $p$-form is defined to be an element of $\bigwedge^p \Omega^1(M)$.
What is the correct mathematically interpretation for the elements of $\bigwedge^p \Omega^1(M)$? The elements of $\Omega^1(M)$ are just functions from $Vec(M)$ to $C^{\infty}(M)$. Are elements of $\bigwedge^p \Omega^1(M)$ also funtions? If what is their domain and codomains?
Your definition of a differential $p$-form on an $n$-dimensional manifold $M$ is slightly different from the one I learned.
The definition I'm used to is: given an $n$-dimensional manifold $M$, a differential $p$-form $\omega$ is a function which assigns to each point of $M$ an alternating $p$-tensor whose domain is the tangent space at that point. That is, for each $x\in M$ $\omega(x)\in\Lambda^p[T_x(M)^*]$. Once you know that the elementary $p$-tensors form a basis for $\Lambda^p[T_x(M)^*]$ for each point $x\in M$, the elements of $\Lambda^p[T_x(M)^*]$ look like $C^\infty(M)$ linear combinations of the elementary $p$-tensors. Of course, the elementary $p$-tensors look like $dx_{i_1}\wedge\cdots\wedge dx_{i_p}$ with $1\leq i_1<i_2<\cdots<i_p\leq n$.
So, some examples of differential 1-forms on $S^2$ are $dx+dy$, $x^4dx$, and $\frac{1}{y^2+x^4}dy$. And an example of a differential 2-form is $(x^2+y^2)dx\wedge dy$ (this differential 2-form is the same as $dx\wedge dy$ on $S^2$).
My definition is not strictly different from yours per se. The one I'm used to stresses the local nature of a $p$-form while yours stresses the global nature. Let's use our definitions of differential 1-forms to explore the nuance, since you seem okay with that definition.
Your definition says that a 1-form is a $C^\infty(M)$-module homomorphism from $Vec(M)$ to $C^\infty(M)$. In other words, it takes a vector field on $M$ and spits out a smooth function on $M$. Consider two different vector fields on $M$ which share some velocity vectors (or tangent vectors), say, at $x$ for example. The smoothness restrictions say that the two different smooth functions our 1-form returns will have to agree at $x$. So, instead of thinking about a 1-form as acting on $Vec(M)$ you can instead think of it as acting simply on the tangent vectors at $x$ as $x$ varies (this is my definition).
Now let's try to understand $\Lambda^p\Omega^1(M)$. Let's forget about all the extra structure $\Omega^1(M)$ brings with it and only think about it as $C^\infty(M)$ module. Forgetting the extra structure let's you see what the domain is. The domain of the elements of $\Lambda^p\Omega^1(M)$ are $Vec(M)^p$ (an element of $Vec(M)^p$ is a $p$-vector field; a $p$-vector field is like a vector field but instead of 1 tangent vector at each point there are $p$) and they each map to $C^\infty(M)$. If we instead only think about these elements locally, you see that they assign an alternating $p$-tensor to each point of $x\in M$ which 'eats up' $p$ vectors from the tangent space of $x$ and spit out a scalar. This is because the smoothness restrictions are going to force the resulting smooth functions to agree at $x$ when considering the same set of $p$-vectors which all happen to be in distinct $p$-vector fields.