In Mendelson's book An Introduction to Mathematical Logic he introduces the use of denumerable sequences in the following section:
Near the end of this passage he states: "Let $\Sigma$ be the set of all denumerable sequences of elements of D". How do we visual these denumerable sequences? I don't quite understand their purpose here. They're clearly more than an ordered representation of the free variables; are they infinite?

Suppose I have a structure $M$ and a formula $\varphi$ - possibly with free variables. Since $\varphi$ might have free variables, it's not a priori clear that the truth value of $\varphi$ in $M$ is well-defined. For example, is "$x_1$ is even" true in $(\mathbb{N};+,\cdot)$?
For each specific formula $\mathcal{B}$, there's a canonical "type of object" needed to make $\varphi$ "unambiguous" in $M$: namely, a map $$v: FreeVar(\mathcal{B})\rightarrow M$$ assigning a value to each free variable in $M$. However, we could also go for overkill: what sort of object makes every formula "unambiguous" in $\mathcal{M}$?
The answer is simply an assignment of values to all variables. Note that such an $s$ really is overkill: for any specific formula $\mathcal{B}$, $FreeVar(\mathcal{B})$ will be finite but $s$ tells us infinitely many facts.
Now let's look at your final comment above. We need to distinguish valuations in the sense above with instantiations of quantifiers. The latter is not relevant here; we're only looking at the former. For example, when looking at the (very silly) formula $\forall x_1\exists x_3(x_2=x_4)$, only the second and fourth values of a sequence $s$ will be "used" when we ask whether $s$ makes that formula true in $M$.
It may help to think about an $s\in\Sigma$ as "acting on" a formula $\mathcal{B}$ to produce a new formula $s(\mathcal{B})$ with parameters from $M$ - namely, the formula gotten from $\mathcal{}$ by replacing each free variable in $\mathcal{B}$ by the corresponding value given by $s$. Looking at your example, thinking about the valuation $s=(c,d,c,d,...)$ we have
$s(\forall x_1(x_1=x_2)$ is $\forall x_1(x_1=d)$ since $s(2)=d$.
$s(\forall x_1(A_1(x_1))$ is just $\forall x_1(A_1(x_1))$ again, since there aren't any free variables for $s$ to do anything to.
$s(A_1(x_1))=A_1(c)$ since $s(1)=c$.
Note that at no point does $s$ touch the quantifiers of the formula it acts on. In particular, if $\mathcal{B}$ has no free variables then $s(\mathcal{B})=\mathcal{B}$.