Question: "Closed points should correspond to prime ideals of some ring, and some of them should be identified. Is the ring the polynomial ring in n variables? Or one in n+1 variables?"
Answer: You define projective space using the "Proj"-construction: $\mathbb{P}^n_k:=Proj(k[x_0,..,x_n])$ and you may find it proved (in Hartshorne or any other book) that $D(x_i) \cong Spec(k[\frac{x_0}{x_i},.. \frac{x_{i-1}}{x_i}, \frac{x_{i+1}}{x_i},..,\frac{x_n}{x_i}]) \cong Spec(k[y_1,..,y_n])$, hence $D(x_i) \cong \mathbb{A}^n_k$ is affine space. A closed point $x\in \mathbb{P}^n_k$ must "live" in $D(x_i)$ for some $i$, hence you get a closed point
$$x \in D(x_i)\cong \mathbb{A}^n_k$$
and since $k$ is algebraically closed it follows $x$ corresponds to a maximal ideal $\mathfrak{m}=(y_1-a_1,..,y_n-a_n)$ for some $a_i \in k$. The ring $k[y_1,..,y_n]$ is the polynomial ring on $n$ variables.
Example: If $n=1$ and $C:=\mathbb{P}^1_k$, you get two open sets $D(x_0), D(x_1)$ and $D(x_0)\cap D(x_1)=Spec(k[t,1/t])$.
If $x\in D(x_0)\cap D(x_1)$ is a closed point you get a point $x:=(t-\frac{a_1}{a_0})$ with $a_1/a_0\in k$ and since $1/t$ is a unit you get an equality of ideals
$$(t-\frac{a_1}{a_0})=(\frac{1}{t}-\frac{a_0}{a_1}) \subseteq k[t,\frac{1}{t}]$$
in $k[t,1/t]$. This equality of maximal ideals correspond to the "equality"
$$(a_0:a_1) \cong (1:\frac{a_1}{a_0})=(\frac{a_0}{a_1}:1)\text{ in }D(x_0)\cap D(x_1).$$
Question: "Are they mapping the point $p:=[a_0:⋯:a_n]$ where $a_j≠0$ to the prime ideal $\mathfrak{m}_p:=(x_0/x_j−a_0/a_j,……,x_n/x_j−a_n/a_j)∈U_j$? If so, why is this a closed point (or even any kind of point) of $\mathbb{P}^n_k$?
Answer: Yes. The maximal ideal lives in $k[\frac{x_0}{x_j},..,\frac{x_n}{x_j}]$ and is by definition maximal.
Example: If you define (as in HH.CH.I) projective space $\mathbb{P}^n(k)$ as the quotient $k^{n+1}-\{(0)\}/k^*$ where $\alpha \in k^*$ acts as
$$\alpha(a_0,..,a_n):=(\alpha a_0,..,\alpha a_n),$$
it follows by HH.CH.I that the set of $a\in \mathbb{P}^n(k)$ with $a_i \neq 0$ is homeomorphic to affine space $\mathbb{A}^n(k)$. Hence a closed point $a\in \mathbb{P}^n(k)$ corresponds to a point $a\in \mathbb{A}^n(k)$ and to the point $a$ you get a unique maximal ideal $\mathfrak{m}_a \subseteq k[y_1,..,y_n]$ on the form you describe.
Example: Let for simplicity $n=1$ and consider $C:=\mathbb{P}^1_k$. It seems to me Vakil uses the following construction: $U_0:=D(x_0):=Spec(k[\frac{x_1}{x_0}]), U_1:=D(x_1):=Spec(k[\frac{x_0}{x_1}])$ and $U_0\cap U_1:=Spec(k[\frac{x_0}{x_1}, \frac{x_1}{x_0}])$ and there are canonical inclusion
$$ k[\frac{x_1}{x_0}] \subseteq k[\frac{x_0}{x_1}, \frac{x_1}{x_0}] $$
and
$$ k[\frac{x_0}{x_1}] \subseteq k[\frac{x_0}{x_1}, \frac{x_1}{x_0}].$$
By definition $U_i \cong \mathbb{A}^1_k$ and a closed point $x\in C$ must correspond to a maximal ideal $\mathfrak{m}_x:=(\frac{x_1}{x_0}-a) \subseteq k[\frac{x_1}{x_0}]$ or $\mathfrak{m}_x:=(\frac{x_0}{x_1}-b) \subseteq k[\frac{x_0}{x_1}]$.
Note: Using the quotient construction $\pi: \mathbb{A}^{n+1}_k-\{(0)\} \rightarrow \mathbb{P}^n_k$ you must prove that the set $\pi(U_i)$ is open, where $U_i \subseteq \mathbb{A}^{n+1}_k-\{(0)\}$ is the "set" where $x_i \neq 0$. Since $U_i=\tilde{D}(x_i)\cap (\mathbb{A}^{n+1}_k-\{(0)\})$ is an intersection of two open sets it follows $U_i$ is open. Since $\pi$ is a quotient map it follows $\pi(U_i)$ is open. The map $\pi$ has the property that $\pi^{-1}(D(x_i)) \cong D(x_i) \times Spec(k[t,1/t]) \cong \mathbb{A}^n_k \times Spec(k[t, 1/t])$. The induced map
$$\pi_i: \mathbb{A}^n_k \times Spec(k[t,1/t]) \rightarrow \mathbb{A}^n_k$$
is the projection map. Here you find a "scheme theoretic" construction of projective space as a quotient:
Why is the projection map $\mathbb{A}^{n+1}_k\setminus \{0\} \to \mathbb{P}^n_k$ a morphism of schemes?
Comment: "Yes. The maximal ideal lives in $k[x_0/x_j,..,x_n/x_j]$ and is by definition maximal." -- Just as I said in my question, this point lies in $U_j$. But under the definition of projective space in 4.4.9, $U_j$ is not even a subset of $P^n_k$, from what I can tell. So it's not clear why that maximal ideal even lies in $P^n_k$ under that definition.
Answer: Whenever you glue a set of schemes $X_i$ along open subschemes $U_{ij} \subseteq X_i$ (see Hartshorne, Ex.II.2.6), by construction $X_i$ give an open cover of the glued scheme $X$. Hence in your case the scheme $U_j$ is an open subscheme of projective space, giving an open cover.