Answer 1

Well, the else statement is where the actual factorial happens. "if x == 1" is the break condition. For every number x that is not 1, it will return x * factorial(x - 1). That's 2 * factorial(1) for 2; 3 * factorial(2) for 3 etc.
So factorial(3) is 3 * factorial(2 * factorial(1)), which is 3 * (2 * (1)) = 6.

Answer 2

The function keeps calling itself with the value from before minus 1, until x == 1. Then 1 is returned, and from there the whole stack of function 'windows' gets closed one after another.
Imagine you call this function with 2.
So the first (and only) inside call will be 2 * factorial(2-1).
1 will be returned, so what's actually written there is 2 * 1.
And if you call it with 3, it will be 3*(3-1)* (return chain starts now) 1.
(Did that even make sense?)