The point is that we have $\mathbb{Q}$ in our hands and want to "construct" real numbers.
To define this we define Dedekind cuts as all pairs $(L,R)$ where $L,R \subseteq \mathbb{Q}$ are non-empty, disjoint, $L \cup R = \mathbb{Q}$ and such that
- $\forall x \in L: \forall x' \in R: x < x'$ i.e. $L$ "lies left of" $R$.
- $\forall x \in L: \exists x' \in L: x < x'$, i.e. $L$ has no maximum.
One easily shows that $L$ is closed under taking smaller points, and $R$ under taking larger points.
For every $q \in \mathbb{Q}$ we can define $L_q = \{x \in \mathbb{Q}: x < q\}$ and $R_q = \{x \in Q: x \ge q\}$. One easily shows that this is always a Dedekind cut. So we have plenty of cuts, and we can define an order $(L,R) \le (L',R')$ (where both are cuts) iff $L \subseteq L'$.
This defines an order on $\mathbb{R}:= \{(L,R): (L,R) \text { a Dedekind cut}\}$
and $(L_q, R_q) \le (L_{q'}, R_{q'})$ iff $q \le q'$. All this can be shown just reasoning inside $\mathbb{Q}$ and its subsets. So the new set (which is formally a set if $\mathbb{Q}$ is) contains $\mathbb{Q}$ as an order-embedded subset.
But cuts like
$$L = \{x \in \mathbb{Q}: x < 0 \text{ or } x^2 < 2\} ,R = \{x \in \mathbb{Q}: x >0 \text{ and } x^2 > 2\}$$
are not of the form $(L_q, R_q)$ so give a new point that we can call $\sqrt{2}$. To justify this we first have to define $+$ and $\times$ on the set of cuts, using the already (hopefully) present $+$ and $\times$ on $\mathbb{Q}$ (this can be done, but it's a tedious checking) and show that the "square" of the above cut really equals $2$, so that $\sqrt{2}:= (L_2, R_2)$.
So $\sqrt{2}$ exists because we can define this cut, and show it has the required properties we expect of it. Every distinct cut by definition is a different "real" number and in this construction the real numbers just are these cuts, by definition. It's not like we already have real numbers and then reason about cuts. The cuts are there only to define the real numbers, so we can reason about them. But we come preloaded with conceptions and intuitions so it can get confusing.
In my old university we had a short course in our first year, "Foundations of Calculus" , where we did all of the above (including field operations etc.) and all proofs of them in detail, basically as a training in formalisation: show how we can prove all we "think we know" and use in Calculus (like order completeness of the reals and denseness of $\mathbb{Q}$) and other courses starting from just Peano's axioms (constructing and proving all about $\mathbb{Z}$ and $\mathbb{Q}$ as well) and some basic set theory. IMHO every wannabe mathematician should go through it once, just to see it is possible and to enhance your faith in your intuitions.
There are other ways to construct the real numbers based on $\mathbb{Q}$, namely identifying a real with an equivalence class of Cauchy sequences in $\mathbb{Q}$. This is more like viewing the reals as decimal expansions e.g. ( which are special Cauchy sequences based on powers of $\frac{1}{10}$ really). Here also we can define field operations and a linear order etc. all in other ways. This way of doing it is due to Cantor I believe (and it's a model for constructing completions for all metric spaces), while the cuts method is due to Dedekind and completes the order (not the metric), to get all suprema of bounded above sets. It turns out that the resulting ordered, metric fields are isomorphic and homeomorphic, so both can be identified and called $\mathbb{R}$.