You use the axiom of choice while constructing the sequence $(x_n \mid n \in \mathbb N)$. To make this more apparent, we need to be a bit more formal in how you obtain such a sequence:
Consider the set $S$ of all finite sequences $\vec{y} = (y_n \mid n \le m)$ such that $y_0 = x_0$ as fixed above and such that for all $n < m$ $y_{n+1} \in X \setminus \{ y_0, \ldots, y_n \}$. Now consider the relation $R$ on $S \times S$ given by
$$
(y_0, \ldots, y_m) R (z_0, \ldots, z_l) : \iff l > m \wedge \forall n \le m \colon y_n = z_n,
$$
in simpler words: $\vec{y}R\vec{z}$ iff $\vec{z}$ is an end-extension of $\vec{y}$.
Your induction proves that for all $\vec{y} \in S$ there is some $\vec{z} \in S$ such that $\vec{y} R \vec{z}$. The axiom of choice (it suffices to have the axiom of dependent choice) now allows you to pick an infinite sequence $( \vec{y}_n \mid n \in \mathbb N)$ such that for all $n \in \mathbb N$
$$
\vec{y}_n R \vec{y}_{n+1}.
$$
If you now let $x_n$ be the $n$-th element of $\vec{y}_n$, the resulting sequence $(x_n \mid n \in \mathbb N)$ is as desired.
Note that this doesn't prove that some form of choice is necessary. It only highlights where you implicitly use the axiom of (dependent) choice. To see that, in general, we need some form of choice here is much harder and (for the moment) you really shouldn't worry about that.
Yes, you're following the very unfortunate convention that "cardinality" is the same as "equipotent with an [initial] ordinal". Whereas cardinality, and cardinals, can be defined in general without talking about ordinals or well-orderable sets.
You can define "language" as "something humans use to transfer information between individuals" in which case no other species can have a language, as it is defined only for humans. But you'll be missing out on blackbirds having syntax and cultural songs, and other much more.
The point I am making, of course, is that even if you insist that "cardinal" should mean a set that can be somehow "counted" and thus be well-ordered, the idea of "cardinality" in its Cantorian glory, is simply the formalisation of the equivalence relation "there is a bijection between two sets" into set theory, and this can be easily represented using Scott's trick. So every set has a cardinality, and every set should have a cardinal, which may or may not be an ordinal.
Best Answer
The proof is fine. You're appealing to induction. You would only need to choice if you want to claim that from this proof follows that every infinite set has a countably infinite subset.
There are two key facts here:
That means that if we managed to somehow find a subset of size $n$, then there is a subset of size $n+1$. And by induction that means there are subsets of every finite size.