Let us go through your questions first:
- $b > 0$ implies, if $b$ is natural, that $b \geqslant 1$.
- If you take $k = - \lvert a\rvert $ then $k = a$ if $a \leqslant 0$ and $k = - a$ if $a \geqslant 0$.
- Yes, though I'd normally write it as $a - ab$ or $a(1 - b)$.
Now, on to the task you were asked to complete. Let $k =- \lvert a\rvert$ as suggested and let $r$ such that $a = kb + r$. What do we know about $r$?
$$
r = a - kb = a - \lvert a\rvert b \leqslant \lvert a\rvert - \lvert a\rvert b = \lvert a \rvert (1 - b) \leqslant 0.
$$
Now consider the set
$$
R = \{a - kb \mid k \in \mathbb{Z} \colon a - kb \leqslant 0\}.
$$
We know there an element $r \in R$ has $r \leqslant 0$ by construction and $R$ is non-empty by our previous work. Thus it has a largest element, say $r' = a - kb$ for some $k$ (different from above).
If $r' = 0$, we are done by setting $r = r'$ and $q = k$. If $r < 0$, consider $k = q - 1$ and $r = r' + a$, then $r = a - qb$ and so:
$$
a = qb + r.
$$
If $0 \leqslant r < a$ we are done. If not, we do know $r < a$ (as $r' < 0$), so we must have $r < 0$, but as $r = a - qb$, this means $r \in R$, a contradiction with $r'$ being the largest element of $R$! Thus this cannot happen and this $r$ and $q$ work.
Note that normally a similar set is constructed, but with the condition $a - kb \geqslant 0$ (note sign reversal). Setting $k = \lvert a\rvert$ would work for this. You could try this yourself with this as your basis.
Edit after update question.
The assertion "Substituting $a$ for $k$ in $a−kb$ then $a−(ab)$" is correct, however not useful if we actually wish to consider $k = -\lvert a \rvert$. If I said "Substitution $\pi + \tau$ for $k$ in $a - kb$ then $a - (\pi + \tau)b$" then that is a correct sentence, just not particularly useful!