You’ll recall, I expect, from chapter 7, that Edward Dorrit (nicknamed “Tip”) had gone to work for a horse-dealer named Slingo, and that after some months he was returned to the Marshalsea debtor’s prison, evidently owing money to his employer that he could not repay:
‘Don’t look so startled. No, Amy, not the worst of it. I have come back, you see; but—don’t look so startled—I have come back in what I may call a new way. I am off the volunteer list altogether. I am in now, as one of the regulars.’
‘Oh! Don’t say you are a prisoner, Tip! Don’t, don’t!’
‘Well, I don’t want to say it,’ he returned in a reluctant tone; ‘but if you can’t understand me without my saying it, what am I to do? I am in for forty pound odd.’
So in the passage from chapter 12, the “Principal” (Arthur Clennam) and the “instrument” (Plornish) have gone to visit the horse-dealer with the aim of “effecting Tip’s release” by settling Tip’s debt, or at least a fraction of it: Plornish suggests that “ten shillings in the pound” (that is, 50%) “would settle handsome”. The use of “Principal”, “instrument”, “Plaintiff”, and “Defendant” in this passage are a humorous adoption of legal jargon, likening the expedition to the horse-dealer to a case at law.
Horse-dealers were the car salesmen of the 19th century and notorious for their sharp and sometimes fraudulent practices, using every possible trick to pass off broken-down lame old nags as hard-working healthy young animals. Starting at the words “a remarkably fine grey gelding”, Dickens adopts the register of a persuasive salesman, so that we are to understand that this is Slingo’s sales pitch.
Now to the questions. It is the horse that (allegedly) “ran away with Mrs Captain Barbary”, that is, it galloped off while she was riding it and she was unable to make it stop. Hence “not up to a horse of his courage” means “not a skilled enough horsewoman to control such a lively horse.” It was (supposedly) Mrs Captain Barbary who “insisted on selling” the horse, because she was not able to control it. The relevant senses are:
run away with (a) Of a horse, etc.: to carry off ungovernably, bolt with (a person).
up to (a) Able to perform, do, or undertake; fit or qualified for; capable of.
courage, n. 3.a. Spirit, liveliness, lustiness, vigour, vital force or energy.
Oxford English Dictionary.
That was Slingo’s sales pitch. If it were true, it would demonstrate that the horse was being sold at a low price because it was too strong and vigorous for its owner. But Dickens warns us not to believe a word of it, for he notes that the horse had been “made to swallow shot for the improvement of his form”. This was a trick which an unscrupulous dealer might use to disguise a “broken-winded” horse:
B[roken] W[ind] is so bad a form of unsoundness, that horse-dealers sometimes attempt, and even successfully, to hide the defect for the time they may be engaged in the sale of a horse, and this they do by causing the animal to swallow shot or grease. A certain portion of lead weighing in the stomach has a wonderful effect in diminishing the symptoms, which become again obvious enough a few hours after the ruse has been practised on some unwary purchaser.
Anon (1861). Chambers’s Encyclopaedia, volume II, p. 366. London: W. and R. Chambers.