I don't really understand what upstream or downstream mean. Can someone explain to me please?
For an observer sitting in a flying airplane, it looks as if a stream of air is rushing towards and then past him. Therefore, upstream means "in the direction of flight" and downstream means the opposite direction, the perceived direction of travel of the air.
why do fluid particles interact at the speed of sound?
In fluids (matter in the liquid or gaseous state) the molecules are not packed together in a rigid structure (that would be the case for solid matter) but have some space for moving around. The average speed of this movement is equivalent to the temperature of the fluid (more precisely: The square root of the temperature, measured from absolute zero). The average length of undisturbed motion is very small, though, because molecules are constantly bouncing into each other. A local pressure change (say, by an approaching airplane) will cause more bouncing in one direction, because some molecules will be hit and pushed away by this airplane. Now this disturbance will propagate into the fluid at the speed of their movement.
Propagation of disturbances. The circles symbolize the distance a disturbance has travelled, so bigger circles show disturbances which emanated earlier from the airplane.
At rest ("Stillstand"), the disturbances (which we perceive as sound) will propagate equally in all directions. For Mach 0.8, this is no longer true because the source of sound moves while the sound waves propagate away from it. Still, sound manages to move in all directions, so the pressure changes caused by the approaching airplane are "announced" to air upstream of the airplane.
At Mach 1.4, however, the airplane moves faster than the disturbance. It will hit air which is completely unaware of its coming. This is described by "disturbances created at some point in the flow cannot work their way upstream" in your text. The sound caused by the airplane will not reach the air upstream (= ahead) of it before itself does so.
If you want to know what consequences this has, read this answer.