All that they are assuming is that ##\vec{\mu}## and ##\vec{B}## are not aligned. If they are aligned, then the equation does not apply, since then the cross product is zero, so that there is no change in ##\vec{\mu}##. But they are assuming that they are not aligned, and that the equation does apply.
As for why it goes in a circle... Start with two vectors. Call them ##\vec{\mu}## and ##\vec{B}##. Now draw a third, infinitesimal, vector perpendicular to both ##\vec{\mu}## and ##\vec{B}##, call this third vector ##\vec{\delta}##. Form the sum ##\vec{\mu} + \vec{\delta} = \vec{\mu '}##. Now draw another infinitesimal vector perpendicular to ##\vec{\mu '}## and ##\vec{B}##. Add that one to ##\vec{\mu '}## to form ##\vec{\mu ''}##. Keep doing that forever. You'll find that you've drawn a circle.