Let $A$ be a $C^*$-algebra and $p \in A$ a projection, i.e. an element satisfying $p=p^* = p^2$. Is it true that $pAp := \{pup: u \in A\}$ is a $C^*$-subalgebra of $A$?
Attempt:
Yes, clearly $pAp$ is a complex subalgebra of $A$ so it suffices to check that $pAp$ is topological closed and adjointly closed.
If $pu_n p \to u$, then $$pu_n p = p^2 u_n p^2 = p(pu_np)p \to pup$$ so by uniqueness of limits $pup = u$ so the limit is also in $pAp$.
Since $(pup)^* = p^* u^* p^* = pu^* p$, it is also adjointly closed.
Is the above correct?
Your approach is correct.
Allow me to say a couple of things about these algebras, which are known as corner algebras.