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Technically, Trump just renamed the United States Digital Service to the United States DOGE Service, then created a child agency within it called the United States DOGE Service Temporary Organization reporting directly to the President (which USDS does technically anyways) and hired Musk as a special government employee as head of that. A special government employee is essentially expected to work less than 130 days in the next year and are normally used to fill short term needs, or as expert topic consultants for specific projects, that sort of thing.
USDS is normally basically IT consultancy for other US departments, which is why he has access to a shocking number of keys to the kingdom, as it were.
You don't have to be confirmed by the Senate for most government jobs (just a specific named handful of high ranking positions, like the Secretaries of various Cabinet Departments), and he was basically given the highest possible position he could without needing to be confirmed by the Senate.
The President has final authority and power over the executive branch and over time increasing power has been placed in the executive branch largely because Congress didn't want to fight over things every couple of years and the relative stability of a secondary agency staffed with experts was desirable for things like licensing radio bandwidth. USDS isn't one of these agencies though - it was created by Obama in 2014 to help manage US IT stuff (and basically started from the team that fixed the healthcare.gov site in 2013) and didn't need to be authorized by Congress because it doesn't have rulemaking power over anything outside the executive branch and thus doesn't require Congress to delegate power to it.
As for why he's giving orders and leading departments, legally he probably shouldn't be but he's also been assigned that power by Trump in a way that's questionably legal. There are at least 3 lawsuits that have been filed arguing that it's technically an advisory committee and in violation of the Federal Advisory Committee Act. I could totally see a federal judge agreeing with that, but it would eventually go to SCOTUS and we know who's dick they sucked to get there.
TL;DR: DOGE exists because it's an existing department (US Digital Service) renamed DOGE, Musk was hired under that department in basically the highest spot that wouldn't require Senate confirmation and because that department is essentially cross-departmental IT consultancy it gives him access to a shocking amount of federal IT resources. He isn't being stopped because everyone involved ultimately reports to Trump and Trump has told him to do it. There are at least three lawsuits filed claiming the United States DOGE Service Temporary Organization is in violation of the Federal Advisory Committee Act, but since it's only existed for like 10 days the courts haven't really had a chance to even hear arguments about it yet.