The drawing is misleading. It shows two arrows labeled ##\dot x##, one on the wedge and another to the right of the sliding block. The first arrow clearly represents the horizontal velocity of the wedge relative to the ground. The second arrow is meant to be the horizontal velocity of the sliding block relative to the ground. It cannot be given the same symbol because it is the horizontal velocity of the sliding block relative to the wedge plus the horizontal velocity of the wedge relative to the ground ##\dot x##. The highlighted term is the cross term that arises when you square the correct expression for the horizontal velocity of the block relative to the ground.