How is BLAST's nr database created? Is there a paper or web page describing the procedure for creating the nr database used by NCBI's BLAST implementation?

I presume it's some type of clustering, but I'm curious about how exactly sequences are condensed into non-redundant representatives.
The Refseq team and also the NCBI resource coordinators team publish a new paper every few years, so check out the many papers (e.g. here or here), but to answer your 2nd question, non-redundancy here is (I think) defined very strictly as proteins that are identical in terms of sequence and length, so the clustering is trivial, without the need for a sophisticated clustering algorithm as required to detect more remote homologs.