I'm just learning Pega myself. I'm going through the final build exercise for the second time, just to refamiliarize myself with some of the steps. There are some "errors" or incorrect instructions throughout the course and in the final build exercise. I could be wrong, but I've found solutions and workarounds on my own that make sense where what the Technical Approach was saying didn't work.
As for your specific questions. Are you sure the exercise was calling for an Approve Reject "Stage" or was it just a "Step"? Approve/Reject is a Step from what I've seen. I'd be surprised if there were an entire process, or even more a Stage that was Approve/Reject. If you can tell me exactly what exercise, and wherein the exercise you are I'll take a closer look.
For selecting the routing, there should be an option: Customer Service Rep or CSR or something like that. I remember that part was pretty straight forward.
I hope that's of some help. I've not received a lot of feedback on my questions from more experienced Pega Pros myself in this forum.
From the issues you've mentioned, I'm assuming you're in the Case Management exercise.
The Approval Rejection stage should be created automatically when the Validate request step is added to the case life cycle. The Validate request step is an Approve/Reject step, which defaults to creating an Approval Rejection stage, to which the application directs rejected cases.