The Green Sun was always there, otherwise the First Guardians and Jack would have had no powers. Time doesn't work normally in the Furthest Ring you know, so Dave and Rose somehow created the sun at something like the beginning of time.
Also, the red and blue liquids were the remains of the trolls' and humans' universes. Green Sun is twice the mass of the universe, remember? Since Doc Scratch is on Alternia's moon, that means he was literally inside the bomb that created the Green Sun. In the following flash, Scratch's tower is floating inside the Green Sun, and since the universe is destroyed, Lord English can come into being. This is what kills Doc Scratch.
Remember, the good doc never lies, except by omission. He said that destroying the sun would kill him, but that it's not the only way. He also said that the bomb had the power to destroy the Green Sun, but not that it was actually his intention. Basically, he suckered everyone and his plan was always do create the sun, destroy the universes, and bring Lord English into being.