The answer to this question is derived as follows. First we find the number of outcomes with all 6 different numbers on the die and then put it over the 6^10. 
I don't understand why we have to apply the principal of inclusion and exclusion here. Doesn't subtracting the second term, with the $5^{10}$, cover subtracting all the cases that we want to get rid of, because it only considers sequences with just 5 outcomes? I.e. Why do we add back the $4^{10}$ term?
We add back the $4^{10}$ term because if we don't we end up overcounting the "bad" combinations we have subtracted. For example, any combination that omits both $1$ and $4$ will be counted twice in the $5^{10}$ term -- once because it omits $1$, and again because it omits $4$.
The principle of inclusion and exclusion accounts for all of the overcounting and undercounting caused by the presence of a combination in multiple subcases.