How does $\sqrt{\frac{2(cos(x)-1)}{cos(x)}} \approx x$?
At first I thought it was an example of binomial approximation but I was unable to approximate is to just $x$. I could only get $$\left(\frac{2cos(x)}{cos(x)}-\frac{2}{cos(x)}\right)^{\frac{1}{2}}$$ $$\left(2-\frac{2}{cos(x)}\right)^{\frac{1}{2}} \approx 2-\frac{1}{cos(x)}$$
Am I using the binomial approximation theorem correctly? Or is there another way of approximating this value?
Near $0$?
Well, first of all you have a sign error. For small $x\neq 0$ we have $0<\cos x<1$ so the expression inside the radical is clearly negative. Accordingly, I believe you are trying to show that $$\sqrt {2\,\frac {1-\cos x}{\cos x}}\approx |x|$$ for $x$ near $0$. At least, this has the advantage of being true.
To see it, note that $$\cos x \approx 1 -\frac {x^2}2\implies \frac 1{\cos x}\approx1+\frac {x^2}2$$ Here the second approximation follows from the first by means of first stage of the Geometric series $\frac 1{1-z}\approx 1+z$.
It follows that the modified expression is approximately $$\sqrt {2\times \left(1+\frac {x^2}2\right)\times \frac {x^2}2}\approx \sqrt {x^2+\frac {x^4}2}\approx |x|$$