If $f$ is differentiable at $x_0$, $$\lim_{x\to x_0} \frac{f(x)-f(x_0)}{x-x_0}=f'(x_0).$$
So, $\lim_{x\to x_0} f(x)-f(x_0)=\lim_{x\to x_0} f'(x_0)(x-x_0)=0$.
Thus, $\lim_{x\to x_0} f(x)=f(x_0)$.
Thus, $f$ is continuous at $x_0$.
Since $x_0$ was arbitrary, $f$ is continuous on $\mathbb R$.
My question is: about the step going from $\lim_{x\to x_0} \frac{f(x)-f(x_0)}{x-x_0}=f'(x_0)$ to $\lim_{x\to x_0} f(x)-f(x_0)=\lim_{x\to x_0} f'(x_0)(x-x_0)$.
How are we allowed to do this?
Are we multiplying through by $x-x_0$? Is this allowed? Is it creating a new limit on the right side?
No, its $\lim \frac{a}{b} = c$, so that $\lim a = \lim (\frac ab b) = \lim \frac{a}{b} \lim b = c\lim b.$ We used two things, namely we are allowed to divide by $b$ when computing the limit $b\to 0$, and that limits have a product rule.