Lazard theorem, one direction

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I'm trying to prove the Lazard theorem:Let M be an R-module. Then M is flat if and only if it is the colimit of a directed system of free finite R-modules.

I got this hint of one direction:

Proof. A colimit of a directed system of flat modules is flat, as taking directed colimits is exact and commutes with tensor product. Hence if M is the colimit of a directed system of free finite modules then M is flat.

I have some questions: why do they say flat and not free in this sentence: "directed system of flat"

Moreover I do not understand what is exact and how commuting with tensor product helps to prove that the colimit is flat.