[guided]We want to show two things in this step: that the pointwise wedge $(\alpha \wedge \beta)(x) := \alpha(x) \wedge_x \beta(x)$ lands back in $\Omega^{p+q}(U)$ (i.e. the result is smooth), and that this gives a well-defined $\mathbb{R}$-bilinear graded product on the direct sum.
The strategy is to expand both factors in the multi-index basis from the first step and read off the coefficients of the product. Write
\begin{align*}
\alpha(x) = \sum_{I \in \mathcal{I}_p} a_I(x)\, dx_I, \qquad \beta(x) = \sum_{J \in \mathcal{I}_q} b_J(x)\, dx_J,
\end{align*}
with $a_I, b_J \in C^\infty(U)$ (by the [basis criterion](/theorems/3308)). The pointwise wedge $\wedge_x$ is $\mathbb{R}$-bilinear, so distributing the sums and pulling out the scalar factors $a_I(x), b_J(x)$:
\begin{align*}
(\alpha \wedge \beta)(x) &= \sum_{I, J} a_I(x)\, b_J(x)\, \bigl(dx_I \wedge dx_J\bigr).
\end{align*}
The crucial observation is that $dx_I \wedge dx_J$ is a constant element of $\Lambda^{p+q}(\mathbb{R}^n)^*$ — it does not depend on $x$. We compute it: if $I$ and $J$ share an index, the wedge is $0$ by graded commutativity ($dx_i \wedge dx_i = 0$). Otherwise, $I \sqcup J$ is a set of $p+q$ distinct indices in $\{1, \dots, n\}$; reordering the wedge into strictly increasing order $K = (k_1 < \dots < k_{p+q})$ introduces a sign $\operatorname{sgn}(\sigma_{I,J})$ from the permutation that sorts $(I, J)$ to $K$, yielding $\operatorname{sgn}(\sigma_{I,J})\, dx_K$.
Re-indexing the sum by the resulting $K$ gives
\begin{align*}
(\alpha \wedge \beta)(x) &= \sum_{K \in \mathcal{I}_{p+q}} c_K(x)\, dx_K,
\end{align*}
where
\begin{align*}
c_K(x) &= \sum_{\substack{I \in \mathcal{I}_p,\, J \in \mathcal{I}_q \\ I \sqcup J = K}} \operatorname{sgn}(\sigma_{I,J})\, a_I(x)\, b_J(x).
\end{align*}
Now we ask: is $c_K$ smooth? It is a finite sum (the multi-indices range over a finite set) of constant-signed products of two smooth functions on $U$. The space $C^\infty(U)$ is a commutative $\mathbb{R}$-algebra under pointwise operations: products and sums of smooth real-valued functions are smooth (this is the multivariable chain/product rule applied componentwise). Therefore each $c_K \in C^\infty(U)$, and by the [basis criterion](/theorems/3308) from the first step, $\alpha \wedge \beta \in \Omega^{p+q}(U)$.
This makes $\wedge$ a well-defined map $\Omega^p(U) \times \Omega^q(U) \to \Omega^{p+q}(U)$. Extending it $\mathbb{R}$-bilinearly to $\Omega^*(U) = \bigoplus_k \Omega^k(U)$ — that is, defining the wedge of $\alpha = \sum_p \alpha_p$ and $\beta = \sum_q \beta_q$ as $\sum_{p,q} \alpha_p \wedge \beta_q$ — produces a graded product on the direct sum, which is the structure we want.[/guided]