1. It is the only way. Rotating the square would throw off the triangles.
2. The area of the larger square is exactly twice as large as the smaller square.
the larger square is a 5x5 square, making the area 25 sq. in.
the smaller square has sides that are the same as the hypotenuse of the triangles. The triangles each have 2 sides that are half of 5. When using Pythagorean Theorem of a^2+b^2=c^2, you find that the hypotenuse is 3.5355 in. Thus, the smaller square is 3.5355x3.5355, which makes an area of 12.5.
Thus, the larger square is proportionally twice as large as the smaller square.