1) Lagrangians are confusing. I would recommend watching some physics and engineering lectures on it, but basically they're a mathematical tool used to simplify complicated situations which would be intractable to do using direct Newtonian mechanics. You can treat the Lagrangian as a sort of "energy" that physical systems have, related to kinetic and potential energy, which summarizes the entire state of the system, and the equation for calculating the Lagrangian summarizes the behavior of the system.
2) This is an abuse of notation. We have q, our initial position, and some transformation T(q, s) which takes q (a position) and s (the parameter which controls how the transformation behaves), and returns a new position. We can thus "shadow" q with a new variable, q = lambda s: T(q /* old value */, s).
T(q,s) is also left undefined here, because the point is that this works for all transformations that satisfy certain criteria.
I might write the theorem as:
Suppose there is a system that varies with time with a state that can be stored with two variables, q, and dq/dt or q̇.
For all functions L(q, q̇),
Let p = 𝛿L/𝛿q̇
Let F = 𝛿L/𝛿q
If ṗ=F, then:
For all T(q, s):
if d/ds (L(T(q, s), d/dt T(q, s))) = 0, then:
d/dt (p * d/ds (T(q, s))) = 0.
Which is sorta opaque, but hopefully more explicit about what's being assumed vs. calculated.