1. I create a single-family subdivision using Parcels at a Model scale of 1” = 40”
What do you mean by creating it at 1"=40'? Are you talking about the Annotation Scale? Because Model Space is always 1:1
2. I click on the Layout tab and the subdivision shows up (that in itself I don’t understand) that I have done nothing to create
That's controlled by a setting in Options. If that's checked. When you create a layout there will be Viewport created. Also there will be Viewports in the default layouts.

3. I click on the triangle and change the Paper scale to 1” = 10’ for the 1:4 ratio described in “About Scaling Views in Layout Viewports” and the drawing explodes to a size that nothing is readable.
I haven't read the “About Scaling Views in Layout Viewports”. But if you had 1"=40' in Model Space. Wouldn't you want to plot at that scale. I'm not saying you couldn't plot at a different scale. But it's more likely to be at the Annotation Scale.
If possible. Post your drawing. That way we can see what's happening.
Allen Jessup
CAD Manager - Designer
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